Finance Act, 1972

Discretionary trusts.

32.—(1) In this section—

“deceased” has the meaning specified in subsection (2) of this section;

“payment” includes, in relation to a deceased, any disposition of property in favour of the deceased or in favour of any other person on behalf of or for the benefit of the deceased or in consequence of which the deceased received directly or indirectly a benefit and also includes a set-off or release of an obligation;

“relevant period” means, in relation to a deceased, the period of five years ending at his death or the period from the date of the commencement of the trust up to the date of his death, whichever is the shorter;

“market value” means the price which, in the opinion of the Revenue Commissioners, the property to which subsection (6) of this section relates would fetch if sold in the open market at the time of the death of the deceased;

“trustee” includes any person who, whether the property the subject of the trust is vested in him or not, exercises or has a discretion to exercise a power or make a decision in relation to the nature or extent of, or any matter affecting, a payment under a trust of the kind referred to in subsection (2) of this section.

(2) Where—

(a) property is or has been at any time vested in a trustee upon trusts under which the income or capital, or part of the income or capital, of the property may, at his discretion, be paid to or applied for the benefit of—

(i) any person, or

(ii) any one or more of a number or class of persons, as the trustee may, at his discretion, decide,

with or without a trust or power to accumulate income, and

(b) (i) that person or any one or more of those persons dies or die, or,

(ii) if a body corporate is or was an object of the trust, a person who was a member, a director or an employee of the body, dies,

after the passing of this Act,

any person so dying who at any time during the relevant period received a payment either directly or indirectly out of the property or out of the income of the property (in this section referred to as the deceased), shall, for all purposes of estate duty, be deemed to have had an interest ceasing on his death in the property and that interest shall be deemed to have been an interest in possession.

(3) The interest of the deceased to which subsection (2) of this section refers shall be deemed to have been an annuity equivalent to the average annual amount of the aggregate of all payments made out of the income or capital of the trust property to the deceased during the relevant period or received or enjoyed by him during that period or made to or received by or disposed of by any other person on his behalf during that period, and the annuity shall be deemed to have been paid each year during the relevant period and the property or a proportion of the property which would be required to provide the annuity shall be deemed to have been set aside and retained to meet the annuity during the relevant period:

Provided that a payment out of the capital of the property shall not be treated as a payment for the purposes of this subsection save where there is a trust or power to accumulate income as an addition to the property and then only to the extent to which the payment does not exceed the amount of income accumulated to the date of such payment.

(4) The value of the benefit accruing or arising from the cesser of the deceased's interest shall be the principal value of the property or of the proportion of the property deemed to have been set aside and retained to meet the annuity.

(5) Where property passes on the death of the deceased by reason of his failure to attain a certain age or where a person becomes entitled to property by reason of the failure of the deceased to attain a certain age, the interest of the deceased shall be deemed to have ceased on his death and his interest shall be deemed to have been an interest in possession in the property:

Provided that where the property is held by the trustee on trust for minor children subject only to their interests or the interest of any one of them being divested or defeated on his or their failure to attain full age, estate duty shall not be payable under this subsection on the death under age of any such child other than the last of such children to die without attaining full age.

(6) If at any time during the relevant period the deceased had been in occupation or possession of land or chattels subject to the trust, the following provision shall have effect for the purpose of determining the amount of the annuity referred to in subsection (3) of this section.

For each year or part of a year during which the deceased was the only object of the trust in occupation or possession, the occupation or possession shall be deemed to have been a payment of income at the annual rate of six per cent. of the market value of the land or chattels (as the case may be) at the date of the termination of the occupation or possession.

For each year or part of a year during which a number of objects of the trust including the deceased was in occupation or possession, the deceased's occupation or possession shall be deemed to have been a payment of income at an annual rate of six (divided by the number of individuals who are objects of the trust of full age including the deceased) per cent. of such market value.

(7) The estate duty payable on the death of the deceased by virtue of this section shall be a first charge on the property comprised in the trust at any time during the relevant period, and the provisions of section 8 (4) of the Finance Act, 1894 , shall apply to that property in the same manner as they apply to the property referred to in that section.

(8) The settlor or the person who was the financial source of the property the subject of the trust shall be deemed, for the purposes of section 24 of the Finance Act, 1940 , to be the disponer in relation to the trust.

(9) In relation to property in which an interest is by this section deemed to have subsisted, section (2) (1) (b) of the Finance Act, 1894 , shall have effect as if “holder of an office, or” were omitted.

(10) Where—

(a) the trustee may become accountable for estate duty payable by virtue of this section, and

(b) it is intended that the property or any part thereof shall cease to be subject to the trust,

then, if the trustee obtains from the Revenue Commissioners a certificate of the amount which, in the opinion of the Revenue Commissioners, may properly be treated as the prospective amount of any duty which may be payable by virtue of this section and gives the Revenue Commissioners all the information and evidence required by the Revenue Commissioners in connection with the application for the certificate, he shall not be accountable as trustee for the duty to which the certificate relates, to an amount in excess of the amount certified.