36 Dispositions involving powers of appointment

Summary

This section provides that where a person has a general power of appointment over property, he/she will be treated as disponer on the exercise of, failure to exercise or release of, that power.

Where, however, he/she has a special power of appointment, on the exercise of, failure to exercise or release of, that power, the creator of the power is treated as the disponer.

Details

(1) “general power of appointment” is defined in section 2(1) to include every power, right or authority whether exercisable only by will or otherwise which would enable the holder of the power to appoint or dispose of property to whoever he/she thinks fit or to obtain such power, right or authority (except powers which he/she has in his/her capacity as a trustee for example).

Section 2(2) adds that this includes power to charge money on property and on the rights of a tenant in tail in possession, and provides that the person has such a power, even though he/she may be under some legal or physical disability.

“absolute owner” is defined in section 2(1) to include the interest of a person who has a general power of appointment.

The scheme of the Act is to treat a person who has a “general power of appointment” over property as if he/she were the absolute owner of that property. If a person is given such a power, he/she is taxed as having received the property absolutely. If he/she exercises the power (or allows it to go by default), the person then taking the property takes it from him/her as disponer as if he/she were the absolute owner of the property.

(1A) (1B) (1C) The disponer will be treated as the original settler and the disposition will be treated as the original settlement where the exercise of, the failure to exercise, or the release of, a general power of appointment form part of an arrangement whose sole or main purpose is the avoidance of CAT. In addition, the 6% and 1% charges imposed on certain discretionary trusts will not be prejudiced where the grant of a general power of appointment forms part of an arrangement whose sole or main purpose is the avoidance of CAT.

(2) “special power of appointment” is defined in section 2(1) to mean a power of appointment which is not a “general power of appointment” (as defined). A power of appointment is an authority, as distinct from ownership, given to a person to nominate the persons who are to receive property beneficially. An example of a special power of appointment, in the sense in which it is used in the Act, would be where A gives property to trustees to hold on trust for B for life and, on B’s death, for such of A’s children as the trustees by will appoint. When one of A’s children takes a benefit under an appointment by B by will, he/she will be treated as taking under A’s disposition and from A as disponer.

Relevant Date: Finance Act 2015