Accumulation and maintenance trusts

By Tolley
Accumulation and maintenance trusts

The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Accumulation and maintenance trusts
  • What is an accumulation and maintenance trust?
  • Inheritance tax privileges of A&M trusts
  • Qualifying conditions for an accumulation and maintenance trust
  • A&M trusts - the FA 2006 changes
  • A&M trusts after FA 2006
  • The effect of FA 2006 changes on beneficiaries of different ages
  • Income tax
  • Capital gains tax holdover relief

What is an accumulation and maintenance trust?

An accumulation and maintenance (A&M) trust is a particular type of settlement intended to make provisions for children and young adults up to the age of 25. The key feature is that trustees are given discretion over how to use the income for the benefit of the child up to a specified age. They may accumulate it to augment the child’s capital entitlement, or they may apply it for the purpose of maintaining the child. Income accumulated in early years may be spent in later years when the child is older. The child becomes entitled to the income as it arises when he reaches the age of 18, or at a later age if the trust instrument so provides.

Typically, a beneficiary has a future entitlement to a fixed share of the trust fund and the income arising on it. However, trustees often have the power to vary the allocation of the total income among beneficiaries before they gain an interest in possession. They may also have the power to advance or re-allocate capital. Once the beneficiary gains an interest in possession, his interest in the underlying capital becomes fixed. Usually, it will be paid to him at a specified age, but in some A&M settlements the trustees retain control of the capital for the duration of the trust.

A&M trusts enjoyed privileged inheritance tax treatment between 1975 and 2006, and became a popular way of making provision for children and young adults. Funds could be settled by a parent, grandparent or any other settlor wishing to benefit a young person. This privileged treatment was curtailed as part of the widespread changes to the taxation of trusts introduced by Finance Act 2006. See the March 2006 changes to trust taxation guidance note.

This guidance note looks at the

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