In the matter of the S Trust and the T Trust

Advocate Robert Gardner Guardian ad litem for the minor beneficiaries of the T Trust

Far from being an effective scheme for avoiding inheritance tax liabilities, the scheme proposed by KNAL was a fiscal disaster. The Court is informed that the effect of the transfers made in July 2008 were as follows:-

(i) The transfer gave rise to an immediate 20% inheritance tax charge over and above the nil rate band, creating a tax liability on each of the First Representors of £183,787.50.

(ii) The sum transferred was subject to the "relevant property" regime for inheritance tax purposes, and the consequence was that if the trust fund remained as relevant property, it would be subject to 10 yearly charges following the settlement. The rate of such charge has not been fixed, but may be up to 6% of the value of the Trust. The first charge would arise in the First Representors' case in July 2018.

(iii) If the trustee were to transfer assets away from the settlement so that the property ceased to be relevant property for these purposes, the transfers would give rise to charges which are sometimes called exit charges. The rate of charge, we are told, was a proportion of the 10 yearly rate depending on the duration of the settlement.