Tax consequences not appreciated

The claimants were the two surviving trustees of a settlement made in January 1992.

The defendants were the children of the settlor and the only primary beneficiaries under the settlement although there was also a wider class of potential beneficiaries.

The assets of the settlement included a farm which had significant development value.

It was decided to appoint entitlements of all the trust income equally to the defendants before the first defendant’s 25th birthday so the trustees executed a deed ‘irrevocably’ declaring that the trust income would be paid in equal shares to the defendants.

The trustees were later told the grant of an irrevocable and unlimited appointment of the income to the beneficiaries was tantamount to an absolute appointment of capital which for capital gains tax purposes constituted a deemed disposal of the whole trust fund and could give rise to a chargeable gain.