In the case of Melville V IRC [2000] STC 628 the Court had to
consider the question of whether the statutory definition of
'property' in IHTA84/S272 as including 'rights and interests of any
description' needed to be interpreted in any different way in view
of the opening words of the section 'except where the context
otherwise requires'. The decision in favour of the taxpayers,
upheld by the Appeal Court in July 2001, was that it did not.
In that case, the settlor of a discretionary trust had a
general power, exercisable by deed during his life at any time
commencing three months after the settlement date, to direct the
trustees to exercise their dispositive powers in such a manner as
he should specify, including the transfer of the whole fund back to
himself outright.
Therefore, if this power was property within the meaning of
IHTA84/S272, its value had to be taken into account in computing
the loss to the transferor's estate (
IHTM04054) under IHTA84/S3 (1) on
creating the trust. Because the only circumstances which could have
prevented the exercise of the power would have been the settlor's
death before the three month period had expired, the value of the
settlor's power from the outset was very nearly equal to the value
of the property settled, which was many millions of pounds. In
other words, the value of his estate after the settlement had been
made was little less than it had been, a few thousand pounds
representing the actuarial risk and the loss of use of the assets
for three months. The chargeable transfer was therefore well within
the nil-rate band.
Whilst the decision was successful for the taxpayers in
bringing into play hold-over provisions for CGT, it has other
consequences for IHT in general. For instance, could a double
charge arise on the death of a life tenant with a general power of
appointment (or equivalent power), namely a charge to tax on the
power itself as part of the free estate, and to an equal charge on
the trust assets under IHTA84/S49 (1)?
The implications of this decision are being considered at
present.
(This text has been withheld because of exemptions in the
Freedom of Information Act 2000)
