Overview

Partitioning a trust fund refers to splitting the fund between the income and capital beneficiaries. This will terminate the trust. This guidance note looks at how and when a trust can be partitioned and the tax effects of this. Partitioning a trust should be done by deed. Under the Legal Services Act 2007, writing such a deed is a ‘reserved legal activity’ and should only be undertaken by a person authorised to do so under that Act. See the Reserved legal services guidance note for further information.

Resettlements are covered in the Resettlements and sub-funds guidance note, and variations are covered in the Variations guidance note.

This guidance note deals with the position in England and Wales only. See Simon’s Taxes I5.8 for details of the provisions affecting Scotland and Northern Ireland.

Reasons for partitioning a fund

Reasons for partitioning a fund might include:

1. •

   the reason that the trust was set up no longer being relevant

2. •

   the needs of a specific beneficiary

3. •

   tax mitigation

4. •

   the wish to reduce