Trusts and Estates
Taxpayers and entrepreneurs will now be becoming familiar with entrepreneurs’ relief (ER), which has been with us since 6 April 2008, particularly as it affects individuals. However, what is the ER position regarding trusts and estates?
The position regarding the personal representatives of a deceased individual is that no ER appears to be available. There is no facility for personal representatives to claim ER on behalf of the deceased, irrespective of whether he or she had satisfied the ER conditions up to the date of death (e.g. by having held at least 5% of the shares and voting power in a trading company of which he or she was an officer or employee). The message for ER purposes is therefore ‘use it or lose it’.
Trustees can claim ER on the disposal of settlement business assets, but only in very limited circumstances. The relief is only available to trustees of settlements in which there is an individual who is a ‘qualifying beneficiary’. This is broadly an individual with an interest in possession (but not a fixed term one) in all the trust property, or that part of the trust property including the business assets in question. Only then is ER available, subject to further conditions being satisfied depending upon whether the settlement property comprises business assets (or interests in them) which are company shares or securities, or assets used for the purposes of a business (TCGA 1992, s 169J).
These conditions mean that ER is not available to the trustees of discretionary trusts. It is therefore important to know what type of trust one is dealing with. Whilst it is relatively straightforward in many cases to distinguish between an interest in possession and a discretionary trust, care is needed. The fact that a settlement is named (say) ‘The John Jones Discretionary Trust’ or the ‘Jane Smith Interest in Possession’ trust does not determine their true nature. Only the terms of the settlement will do that.
The above article is taken from ‘Practice Update’, a bi-monthly Newsletter from Mark McLaughlin Associates Ltd. See the Newsletters section.