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GLOSSARY

Age 18—25 trust definition

Published by a LexisNexis Private Client expert

What does Age 18—25 trust mean?

A special category of trust which was introduced by Finance Act 2006 to offer some compensation for the loss of old style A&M trusts. If the particular conditions are satisfied, favourable inheritance tax will apply to the trust.

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Finance Act 2006 changes to trust taxation [Archived]

Finance Act 2006 changes to trust taxation [Archived] ARCHIVED: This Practice Note has been archived and is not maintained. 22 March 2006 was the day of the 2006 Budget which, without any warning or consultation, made sweeping changes to the inheritance tax (IHT) treatment of trusts. The date represents a watershed in the IHT treatment of trusts since many of the key changes took immediate effect. The first step in working out the correct IHT treatment of a trust is to look at whether it was made before or after 22 March 2006. Before 22 March 2006, there were three main types of trust for IHT purposes: • relevant property trusts (usually discretionary trusts) • interest in possession (IIP) trusts; and • accumulation and maintenance (A&M) trusts On 22 March 2006, the relevant property regime was extended to nearly all new lifetime trusts, whether in discretionary, IIP or A&M format. Similarly, additions of property to all existing trusts (with the exception of disabled trusts, bare trusts and some...

Taxation of age 18–25 trusts—IHT

Taxation of age 18–25 trusts—IHT The special category of age 18–25 trusts was introduced by Finance Act 2006 (FA 2006) to compensate for the loss of old style accumulation and maintenance (A&M) trusts. The A&M regime offered exemption from inheritance tax (IHT) charges on trusts in favour of children and young adults up to the age of 25. The conditions were fairly narrow and precise but nevertheless enabled any settlor, both in lifetime and on death, to make provision for young people. See Practice Note: Accumulation and maintenance trusts—IHT [Archived]. After FA 2006: • existing A&M trusts could retain their IHT privileges only if beneficiaries became absolutely entitled to trust assets by the age of 18 • new A&M style trusts could only be created for a child under 18 whose parent had died—see Practice Note: Taxation of trusts for bereaved minors—IHT The age 18–25 provisions extend both of these categories to retain some concessions for beneficiaries up to the age of 25. Inheritance tax concession Where...

Discover our 3 Practice Notes on Age 18—25 trust

If the trustees of a trust for a bereaved minor (TBM) delay entitlement to capital to the age of 25 (making it an age 18–25 trust instead) using their powers under section 32 of the Trustee Act 1925, will a flat rate charge to inheritance tax (IHT) arise because the trust has ceased to qualify as a TBM?

If the trustees of a trust for a bereaved minor (TBM) delay entitlement to capital to the age of 25 (making it an age 18–25 trust instead) using their powers under section 32 of the Trustee Act 1925, will a flat rate charge to inheritance tax (IHT) arise because the trust has ceased to qualify as a TBM? In order to qualify as a trust for bereaved minors (TBM) for the purposes of inheritance tax (IHT), the conditions of section 71A of the Inheritance Tax Act 1984 (IHTA 1984) must be satisfied. For further details on the qualifying conditions of a TBM, see Practice Note: Taxation of trusts for bereaved minors—IHT. The Practice Note states that the provisions concerning entitlement to capital are not breached merely because the trustees of a TBM have powers of advancement under section 32 of the Trustee Act 1925, which may allow them to advance funds on new trusts which do not qualify as a TBM. The breach would occur when those powers are exercised...

Would the residence nil rate band be available on a contingent gift of land to a direct descendant on attaining 18, 21 or 25?

Would the residence nil rate band be available on a contingent gift of land to a direct descendant on attaining 18, 21 or 25? The residence nil rate band (RNRB) is an addition to the basic nil rate band (NRB), which further reduces the inheritance tax (IHT) payable on an estate on death. It is applied to the taxable value of the estate, but differs from the basic NRB in that it is restricted to: • the value of residential property or a qualifying residential interest (QRI) • the death estate, and • the inheritance of lineal descendants The QRI, or the portion of the value which is to be set against the RNRB, must be 'closely inherited'. 'Closely inherited' is defined as inherited by a lineal descendant, that is a child, grandchild and remoter issue. Beneficiaries may also include the widow, widower or surviving civil partner of a lineal descendant provided they have not remarried. A lineal ancestor, ie parent, cannot benefit from the RNRB. The QRI does not...

See the 12 Q&As about Age 18—25 trust