18 Computation of tax

Summary

This section provides that the rate of tax imposed on certain discretionary trusts by section 15 is 6%. If the property is transferred absolutely to the beneficiaries of such trusts within 5 years of certain events specified in the section, the charge will be restricted to 3%. The excess amount of tax paid will be refunded.

Details

(1) “earlier relevant inheritance” means a relevant inheritance deemed to be taken on the date of death of the disponer;

“later relevant inheritance” means a relevant inheritance which, after the date of death of the disponer, is deemed to be taken by a discretionary trust by virtue of there ceasing to be a principal object of that trust who is under the age of 21 years;

“relevant inheritance” means an inheritance which, by virtue of section 15(1), is deemed to be taken by a discretionary trust;

“relevant period” means—

• in relation to an earlier relevant inheritance, the period of 5 years commencing on the date of death of the disponer;
• in relation to a settled relevant inheritance, the period of 5 years commencing on the date of death of the life tenant; and
• in relation to a later relevant inheritance, the period of 5 years commencing on the latest date on which a later relevant inheritance was deemed to be taken from the disponer;

“settled relevant inheritance” means a relevant inheritance taken on the death of a life tenant;

“appropriate trust”, in relation to a relevant inheritance, means the trust by which that inheritance was deemed to be taken;

(2) Tax is charged at the rate of 6% on the taxable value (see note on section 28) of the taxable inheritance (see note on section 11) chargeable under section 15.

(3) Notwithstanding subsection (2), if the property comprised in the discretionary trust is transferred absolutely to any one or more of the objects of the trust within 5 years of the death of the disponer or the life tenant or the date when there ceases to be a principal object of the trust who is under the age of 21 years (as the case may be), the charge will be restricted to 3%.

(4) Where 2 or more persons are beneficially entitled in possession to an absolute interest in property, those persons will not be treated, for the purposes of subsection (3), as beneficially entitled in possession by reason only that together they are beneficially so entitled in possession. For example, the trustees of a discretionary trust appoint property so that it is held in trust to pay the income to A during his/her life and thereafter to be held by B absolutely. Neither A nor B have an absolute interest in the trust property but, acting together, they can demand the termination of the trust and the transfer of the trust property to them in agreed shares. This provision ensures that this type of appointment will not qualify for the refund.

Relevant Date: Finance Act 2015