CG37880 | Separate settlements: variations of trusts: by agreement

If all the beneficiaries of the trust are 18 or over and agree, they may bring it to an end and share out between themselves (and others) the trust property. (There is an exception to this rule in Scotland in that a person with an alimentary liferent cannot exercise consent in this way.) In these circumstances there is a deemed disposal by the trustees of the whole of the settled property under TCGA92/S71 (1).

It is also possible, with the consent of the trustees, to vary the terms of the trust. There are all kinds of variation possible. Some property may pass absolutely to beneficiaries or existing separate settlements. Clearly this must involve disposals under TCGA92/S71 (1). Other property is held on the same trusts as before and/or on different trusts.

In such circumstances it is necessary to consider, in the light of the principles set out in the preceding paragraphs and also CG33280-, what the correct analysis is. The alternatives are

• mere variation of the terms of the existing settlement

• continuation of the old settlement as regards part of the property, with the remainder being held on one or more new settlements

• termination of the old settlement in its entirety being replaced by one or more new settlements. This last is an unlikely analysis unless a significant part of the property is being distributed absolutely. In such circumstances it may be helpful to refer to Ewart v Taylor where one reason for the court holding that a new settlement had come into existence was that it was part of a scheme for winding up the old settlement. See 57TC at 468, Section I.

See CG37900 on the identity of the settlor.