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IHTM42815 | Special trusts: Trusts for bereaved minors

From HM Revenue & Customs · Inheritance Tax Manual

Finance Act 2006 introduced a new category of ‘trusts for bereaved minors’, IHTA84/S71A.

A trust of this kind can generally only be set up under:

  • the Will (or intestacy) of a deceased parent, including where this is deemed to have happened – for example, following a Deed of Variation that satisfies the conditions of IHTA84/S142 (IHTM35021 onwards),

  • the Criminal Injuries Compensation Scheme, or

  • under the Victims of Overseas Terrorism Compensation Scheme.

A bereaved minor is a person who has not yet reached age 18 and at least one of whose parents has died, IHTA84/S71C. Parent can include a step-parent or a person who, immediately before their death, had parental responsibility for the minor, IHTA84/S71H. It is possible, though, for a trust of this sort to be set up under the intestacy of a grandparent, great grandparent etc. For example:

  • X dies intestate, one of his children (A) having predeceased him;

  • A’s two children, B and C, are minors but on attaining 18 will take under the rules of intestacy (IHTM12112) A’s share of X’s estate that A would have taken;

  • The trusts for B and C while they are under 18 will qualify as trusts for a bereaved minor under IHTA84/S71A(1)(a), since this requires only that the settled property should be held ‘on statutory trusts for the benefit of a bereaved minor’.

For as long as the minor is living and under the age of 18:

  • any of the settled property that is applied for the benefit of a beneficiary must be applied for the minor, IHTA84/S71A(3)(b) and (c); and

  • either they must be entitled to all the income arising from the settled property, or no such income may be applied for anyone else.

On attaining the age of 18, or before, the minor must become absolutely entitled to the settled property, any income arising from it, and any income that has arisen and been accumulated before that time, IHTA84/S71A(3)(a).

The Inheritance Tax (IHT) charges on trusts for bereaved minors

There is no charge to IHT where:

  • the bereaved minor receives absolute ownership on or before their 18th birthday, or

  • property is applied for the maintenance of the bereaved minor, or

  • the bereaved minor dies before reaching 18.

However, a flat rate charge to IHT (IHTM42802) arises in any other circumstances where:

  • S71A ceases to apply to the settled property, or

  • the trustees make a disposition which reduces the value of property held in the trust

Where S71A applies to accumulation and maintenance trusts created before 22March 2006 that previously met the conditions of S71A, S71A will take precedence over S71 (S71(1B)).