Under the Settled Land Act 1925, a ‘settlement’ is a trust of land where no trust for sale is imposed. There are two types: Fixed Interest Trusts and Discretionary Trusts.

Fixed Interest Trusts

When the settlor settles property upon trust, the settlor may wish to determine how the beneficiaries are to enjoy the settled property in the future. The settlor may determine the extent of each beneficiary’s share, however, each beneficiary must be identified with certainty. The settlor who creates such a trust gives fixed equitable interests to the beneficiaries. If entitled to the whole equitable interest and of full age and capacity, they may by agreement put an end to the trust.

Discretionary Trusts

If the settlor does not wish to determine the extent of the beneficiary’s share, the settlor may nominate a category of beneficiaries and give trustees the power to determine how much a beneficiary should receive.

Trustees’ discretion may simply concern the distribution of income, but the settlor may widen the trustees’ discretion to allow them to retain or accumulate the income as they think fit. The trustees’ discretion may even extend to capital, giving them a fixed interest in capital.

Inheritance tax and settlements

Settlements created before 22 March 2006 can either be with interest in possession or without interest in possession. Settlements created after 22 March 2006 can either be lifetime transfer or created on death.

All settlements created by lifetime transfer on or after 22 March 2006 are relevant property settlements, unless created for a disabled beneficiary. Discretionary settlements created before that date are relevant property settlement, which is a settlement which has no qualifying interest in possession, and which does not qualify for any privileged treatment. Settlements created on death on, or after, that date will be relevant property settlements.

At Audley Chaucer, we handle all private client matters and would be more than happy to advise you. Please contact John Szepietowski or Kay Stewart at Audley Chaucer for an initial consultation.


Joseph Beams

Related News