Settlement
and Settled Property
When property is to be held in a trust
for successive beneficiaries,
a settlement is created wherein the “settlor” places
the property inside a trust fund and it is considered “settled
property”.
 Settlor
For the purpose of inheritance tax, the settlor is the
party creating the settlement by either directly or
indirectly providing
the asset for the settlement.
Settled Property
In the context of inheritance tax, settled property refers
to assets placed in a trust for successive beneficiaries
or for
any individual. Terms and conditions specified by the settlor
may apply, such as the beneficiaries reaching a certain
age.
Income may also be accumulated, or it is otherwise
payable subject to whatever terms the settlor has specified. Settled
property also refers to property held under arrangements
according to the laws of another country to the same effect.
Take
note that not all property placed in a trust is considered
settled property. For example, property to be distributed
by the trustees to specific parties is not settled
property.
Conversely it is also possible for settled
property to include property not held in trust. This would
be
the
case with property
under a lease agreement for the duration of the lease,
if the lease was not granted for full consideration
of its cash
value.
Though not held in trust, this would be classified
as settled property.
Settled Property Taxation
Tax on settled property is based on the rights of
the beneficiaries at the time the tax is applied.
For instance,
if a beneficiary
has “interest in possession” in the
assets, tax is payable upon the time the interest
concludes, or within 7 years
before the settlor’s death, as if they had
transferred the property as absolute owner. However
certain exceptions may
apply.
For example, if no party has an interest
in possession, the trust is treated like a separate
entity for
tax purposes. These are
referred to as discretionary trusts.
Because these
guidelines are applied according to the rights of the beneficiaries
at the time
of taxation,
no final
classification is given to either the property
or the
trust itself. However,
the rules may apply to the same property depending
on the situation, or to various parts of the
trust at the
same time. |
