Accumulation and Maintenance (“A&M”) Settlements Print

An A&M Settlement is basically a discretionary settlement created for the benefit of children, or grand-children. In particular the Trust must provide for the beneficiary to become beneficially entitled to the trust assets, or obtain an interest in possession in them on attainment of a specified age, not exceeding 25 years. Prior to reaching the specified age the beneficiary must not have an interest in possession, and the income of the trust, not paid for the maintenance, education or benefit of the beneficiary, is to be accumulated.

The income tax position of an A&M Settlement is identical to that of any other discretionary trust. The changes to the IHT rules effectively mean that no new A&M Settlements can be created which have the advantages of those A&M Settlements which were in existence at 22 March 2006, when the IHT rules changed. This type of settlement now falls within the Discretionary Trust rules for IHT purposes. Accordingly the settlor may hold over gains arising on the assets settled into an A&M Settlement created on or after 22 March 2006.

It should be noted that the A&M Settlement ceases when the beneficiary reaches a specified age (maximum 25 years) at which point it either becomes an interest in possession settlement, or the beneficiary becomes absolutely entitled to the assets. If, at the cessation of an A&M Settlement, the assets are transferred to the beneficiary, a CGT liability will arise and gains on the assets transferred may be held-over. In this connection it should be noted that if the beneficiary of the A&M Settlement has already become entitled to the income of the Settlement (or his share of the Settlement), then hold-over relief will not be available on the transfer of assets to him.  In other cases, where the assets continue to be held by the trustees for the beneficiary under an interest in possession trust, no liability to CGT arises, as there has been no disposition by the trustees. However, on a future transfer of the assets to the beneficiary, a liability to CGT will arise, and hold-over relief will not be available at this point.

For IHT purposes the creation of an A&M Settlement after 21 March 2006 is treated as a chargeable transfer during the settlor’s lifetime and if the amount settled, together with other transfers during the previous 7 years, exceeds the transferor’s Nil-rate band, an immediate charge to IHT will arise. In addition, the 10-year anniversary charges will apply.

A&M Settlements in existence at 21st March 2006 continued within the old regime until 5 April 2008. Thereafter, unless the beneficiaries became absolutely entitled to the trust capital on attaining the age of 18, the settlement came within the IHT charging provisions from 6 April 2008.

Where the trustees do not wish to allow the beneficiaries to become absolutely entitled to the trust assets at age 18, they may also consider allowing this on or before the beneficiary becomes 25. Although this is not as flexible as the previous regime under which it was only necessary for the beneficiary to obtain an income in possession of the trust assets at age 25. The IHT on exit is calculated in the same way as for Age 18-25 trusts which are discussed in the section on Interest in Possession trusts below.

Main Advantage: As for Discretionary Trusts. Most additional advantages were removed by Finance Act 2006.

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