Capital Acquisitions Tax Consolidation Act 2003 section 20

Annual acquisitions by discretionary trusts

Section 20 provides that property held in a chargeable discretionary trust is deemed to be taken as an annual inheritance on each chargeable date, giving rise to a 1% annual discretionary trust tax charge, and contains anti-avoidance rules to prevent the charge being circumvented by temporarily appointing property out of the trust.

• On each chargeable date from 2003 onwards, a chargeable discretionary trust is deemed to take an inheritance of an absolute interest in the trust property, as if the trust and trustees together were a single person — giving rise to the 1% annual charge.
• Where property is temporarily appointed out of the trust to create a short-term interest in possession spanning a chargeable date, the property is still deemed to be subject to the trust if the interest is revocable or will cease on an event other than the person's death or the expiry of a fixed period of at least 5 years.
• Future interests (interests in expectancy) and interests in life assurance policies are not treated as trust property until they fall into possession — so they are not subject to the annual charge until that point.
• The 1% annual charge does not apply to property on a chargeable date if that same property was already subject to the once-off 6% discretionary trust charge under section 15 on the same date or within the preceding year.