This guidance relates predominantly to the period before 6 April
08. After this date, rights to income after age 18 are not relevant
to the requirements of IHTA84/S71.
Theoretically the decision in the case of
Bassil v Lister [1851] 9 Hare 177
indicates that the use of trust income in the payment of premiums
on life policies is not an accumulation within the meaning of the
Thellusson Act.
It is now thought, however, that that decision is of doubtful
authority and that it can be successfully challenged in the Court
of Appeal if the need to do so arises. So, for the purposes of the
condition in IHTA84/S71 (1)(b), you should treat a power to use
income in this way as a power to accumulate, and so subject to the
rules against excessive accumulations.
In the light of this, and of the judgement of the Court of
Appeal in
Inglewood v IRC [1983] 1 WLR 366 the
mere existence of a power to pay life policy
premiums out of income
may prevent a trust from satisfying the condition
in S71(1)(a) because it renders it uncertain whether the
beneficiary will acquire an interest in possession on or before
attaining the specified age.
You may concede, however, that S71 is satisfied in cases
where
Despite the guidance to be found in the
Carver and Bosanquet judgements, the
law in this area is not entirely free from doubt. Accordingly,
special care is needed in any case where there is an unrestricted
power to effect a life policy and pay the premiums out of income if
the beneficiary may become entitled to
more than a limited interest in possession.
In such a case do not raise a claim under IHTA84/S65 (1)(a)
on the S71 conditions becoming satisfied. Do not give any assurance
that those conditions are satisfied, until the views outlined above
have been explained to the trustees and until, as a result, they
accept that in the circumstances of that case the power is purely
administrative in character (or that, so far as it is not, it can
be exercised only within the permitted period for
accumulation).
Refer any case in which these views are challenged should be referred to TG.
You should note that the foregoing only applies to powers to effect life policies, and not to a power limited to effecting term policies for the protection of the settled property against possible future claims for tax (or additional tax) which may arise. Regard the premiums paid on any such policy effected by the trustees as payments of cost or expenses.
