Creation of trusts—by exercise of trustees powers
Creation of trusts—by exercise of trustees powers

The following Private Client guidance note provides comprehensive and up to date legal information covering:

  • Creation of trusts—by exercise of trustees powers
  • Creation of new trusts in the exercise of powers under existing trusts
  • Powers capable of being exercised so as to create a new settlement
  • Principles to determine whether a new settlement has been created

Creation of new trusts in the exercise of powers under existing trusts

For capital gains tax purposes, if property passes into a new settlement, there is a deemed disposal under section 71 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) and a charge to tax. It is important for settlements to contain powers enabling the existing trusts to be modified as well as powers enabling property to be resettled. In some cases a resettlement will be intended. In others, the intention will be for property to remain comprised in the original settlement.

It has been held that the words 'absolutely entitled to any settled property' in TCGA 1992, s 71 apply where trustees of one settlement, in pursuance of a power or advancement or appointment, exercise that power in favour of trustees of another settlement. Often, however, it may be difficult to determine whether property held in trust constitutes a single settlement or more than one settlement for capital gains tax purposes.

Further, trustees of a settlement may become absolutely entitled as against themselves, for the purpose of capital gains tax, if they resettle property on new trusts in circumstances such that the trusts are construed as creating a new settlement, as opposed to being merely grafted onto the original settlement.

Whether the trustees have created a new settlement will