188体育

When property is settled by the gift, the normal rules about tracing do not apply. (IHTM14371)

Instead, the general rule (FA86/Sch20/Para5) is that the property comprised in the gift is

• all the property comprised in the settlement at the date of the donor鈥檚 death (or earlier ending of the reservation)
• except so far as that property neither is, nor represents, nor is derived from, the property originally given.

The following are included:

• accumulation of income arising before the reservation ceased (but not accumulations of income arising subsequently)
• property which is derived, directly or indirectly, from a loan made by the donor to the trustees of the settlement. All types of loan, not just those that are interest free, are within the scope of this provision. However, it does not apply to a loan by someone other than the donor (such as the donor鈥檚 spouse or civil partner (IHTM11032)).

Example

In 2000 Vineet settles 拢1 on discretionary trusts of which he is, and remains until his death in 2005, an object. Shortly after the creation of the settlement he advances 拢50,000 to the trustees by way of loan, interest free and repayable on demand.

At the time of Vineet鈥檚 death, the settled property comprises 拢1 cash (representing the original 拢1 gift into settlement) and the proceeds of an insurance policy (purchased with the borrowed monies) on Vineet鈥檚 life amounting to 拢250,000.

The loan of 拢50,000 has been repaid at the rate of 拢2,500 per annum by the trustees and 拢25,000 is outstanding at the date of death.

The proceeds of 拢250,000, less the loan of 拢25,000, are derived from the original loan, and you can treat them as part of the death estate. (The balance outstanding under the loan less 拢25,000 forms part of the free estate).