A trust was created in 1985 and was immediately resident in Jersey. When the rules changed and reference to qualifying settlements was introduced, what made an "old trust" become qualifying?
I have read the legislation and SP 5/92 but don't really understand the text, nor the principles behind it.
Could anyone put it in simple terms please?
How easy is it to define a non-qualifying settlement?
Many thanks.
Tony P
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Golden trusts lost their lustre in 1998
Even pre 1991 settlor interested trusts fall into s.86 post March 1998 as 'qualifying trusts'. Children/grandchildren as potential beneficiaries [if the settlor was excluded before 1998] retain 'non qualifying'status unless they are added subsequently.
Thanks for your comments Simpleson
Could you please clarify your point about the settlors being excluded?
When you give a broad description of what a qualifying settlement is, does that refer to all settlements or just those created post-18 March 1991?
I had been told/thought I understood that pre-19 March 1991 settlements remained non-qualifying (golden trusts?) i.e. all pre-19 March 1991 settlements are "protected settlements", but they could become qualifying (tainted) if certain other conditions weren't met.
Unless I'm misunderstanding you, you seem to be saying that broadly all settlements are qualifying if the settlors (or their descendants) are or could be beneficiaries.
In my case, it seems that the settlors were excluded (but I'm investigating this point) but their adult daughter was made life tenant (I'm also checking that there have been no changes to classes of beneficiaries). Depending on the above it appears that the settlement may be non-qualifying, and as you say, that may not be desirable due to SS 87 and 91.
The surviving settlor has personal capital losses and is unlikely to utilise any of the annual exemption each year. The life tenant will only have the annual exemption each year.
If the life tenant settled property into the trust, would this immediately convert it into a qualifying settlement so that the settlor's personal losses and annual exemptions could be utilised?
If the amount settled was a nominal sum, this would appear to be tax-efficient. Or is it not as simple as that?
Thanks also for your comments on the IHT points. I think the whole area is interesting; just wish I could get my head round it!
The 'grandfathering' rules are the key issue- if there have been
The dates are critical, as different 'grandfathering 'rules apply.
These are to be found in TCGA s.86 and Sch 5.
The settlement is a 'qualifying' settlement if , broadly, the settlor, his spouse , their children or grandchilden are or could be beneficiaries.
This rule is disapplied if the settlement was a protected settlement , and the 'offending class' of beneficiary was not later included.
So ,provided the settlor and spouse were excluded , then the protection would be lost [so that the settement became 'qualifying'] if
1)children as potential beneficiaries were added after 18th March 1991
, and
2) grandchildren if added after 16th March 1998 .
So if the original settelement merely excluded the settlor and spouse when established, and there has benn no addition to the class of beneficiaries since, then the settlement is still a non qualifying settlement.
Having regard to the punitive provisions of s.87 and 91, that protection may not be such good news.
There is an interesting IHT issue if the settlement is or becomes a qualifying settlement and realises a gain during the lifetime of the settlor, so triggering a personal CGT charge for him. Schedule 5(6) gives a right of recovery to the settlor- but wht if the trustees, presumably not within the jurisdiction of the UK courts, refuse to pay?
Does that mean that if the settlor dies and has failed, and his executors fail to recover the tax from the offshore trustees, the CGT he has to pay is an allowable expense for IHT purposes. The Revenue do expect the executors to seek to enforce this , but the question is one ultimnately for the local courts, not the UK Revenue.
The gains would not become stockpiled gains for CGT by virtue of s87(3). So for the family an effective rate of only 24% after IHT relief would be preferable to a potential rate of 64% which could otherwise arise.