Revenue Note for Guidance

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Revenue Note for Guidance

PART 5 PROVISIONS RELATING TO GIFTS AND INHERITANCES

Overview

Special provisions dealing with express trusts (i.e. trusts created by deed or under a will) are provided for in this Part. Such trusts may be reconstituted or broken up, wholly or partly. To provide for these situations, the legislation includes provisions covering dealings with future interests (section 32), the release of limited interests (section 33), resettlements (section 34) and enlargement of interests (section 35).

This Part also contains provisions dealing with other matters dealing with gifts and inheritances as follows:

  • the treatment of distributions from discretionary trusts,
  • who the disponer is in the case of dispositions involving powers of appointment,
  • the cesser of liabilities,
  • dispositions enlarging the value of property,
  • gifts subject to a power of revocation,
  • the free use of property and interest-free loans,
  • when an interest in an assurance policy becomes an interest in possession,
  • provisions applying where section 98 of the Succession Act 1965 has effect,
  • dispositions made by or to a company, and
  • arrangements reducing the value of company shares.

31 Distributions from discretionary trusts

Summary

The section provides that distributions from discretionary trusts will be taxed as and when they are made. The Act does not impose mainstream tax on the initial settlement of property because no person takes a beneficial entitlement in possession in the property at that time.

Details

Where a person becomes beneficially entitled in possession to any benefit—

  • (a) under a discretionary trust, other than a discretionary trust referred to in paragraph (b), otherwise than for full consideration in money or money’s worth paid by him/her, he/she is deemed to have taken a gift;
  • under a discretionary trust, otherwise than for full consideration in money or money’s worth paid by him/her, created—
    • (b)(i) by will at any time,
    (b)(ii) by a disposition, where the date of the disposition is on or after 1 April 1975 and within 2 years prior to the death of the disponer, or
    (b)(iii) by a disposition inter vivos and limited to come into operation on a death,

he/she is deemed to have taken an inheritance.

Relevant Date: Finance Act 2015