Trusts and Inheritance Tax

Partitioning trust funds

Produced by Tolley
  • 23 Mar 2022 10:59

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

  • Partitioning trust funds
  • The rule in Saunders v Vautier
  • Valuation of the beneficiaries’ interests on a partition of a trust fund
  • Statutory partition of trusts of land
  • Other options available to the beneficiaries
  • Capital gains tax on a partition

Partitioning trust funds

In some circumstances, it might be desirable to partition a trust, that is to break the trust by dividing up the assets between the beneficiaries. The term partition is usually applied to a division of assets between the life tenant and the remaindermen beneficiaries (thus bringing the trust to an end). It can also refer to splitting a trust into separate funds, which then operate independently under new trusts (and may have different beneficiaries and trustees).

Although there is some overlap between ‘partition’ and ‘resettlement’, the latter more often refers to a re-organisation within the trustees’ existing powers, whereas partition requires approval by the beneficiaries. See the Resettlements and variations guidance note.

Reasons for partition might include:

  1. the expiry of the rationale for the trust

  2. specific beneficiary needs

  3. tax mitigation

  4. a desire to reduce trust administration costs, or

  5. a breakdown in relations between the beneficiaries

Where the beneficiaries wish to bring the trust to an end by mutual agreement, whether or not the trustees agree, this can usually be achieved under the rule in Saunders v Vautier, provided certain criteria can be met.

Trustees of trusts of land can also bring about a similar outcome between co-owners of the entire beneficial interest in the property that is subject to the trust of land, provided they all consent. This is under the Trusts of Land and Appointment of Trustees Act 1996.

The rule in Saunders v Vautier

Whilst originally serving as authority for beneficiaries to stop accumulations of income, the case of Saunders v

Access this article and thousands of others like it
free for 7 days with a trial of TolleyGuidance.

There's no margin for error. Think Tax.
Think Tolley.

TolleyGuidance gives you direct access to critical, comprehensive and up-to-date tax information and expertise you can rely on.


Popular Articles

Deferral of capital gains via reinvestment

Why defer a gain?An individual’s net taxable income and chargeable gains for the tax year influence the rate of tax payable on their capital gains. See the Introduction to capital gains tax guidance note.Depending on the nature of the asset disposed of, this can result in the individual paying

22 Mar 2022 09:47 | Produced by Tolley Read more Read more

Repayment of tax ― individuals

If the self assessment tax return shows that a repayment is due, the taxpayer can claim a repayment or leave it as a credit on their statement of account.The quickest and safest method is for HMRC to make the payment direct to the taxpayer’s bank or building society account and so they are asked to

22 Mar 2022 09:44 | Produced by Tolley Read more Read more

Quoted companies ― an overview

What is a quoted company?Reference to a quoted company is usually to a company where the shares in the company are listed on the London Stock Exchange, any other international stock exchange, or on AIM or ICAP Securities and Derivatives Exchange (formerly the PLUS market and now known as ISDX) in

22 Mar 2022 12:12 | Produced by Tolley in association with Andrew Rainford Read more Read more