Readers’ forum: Life interest trust

I have a case where the trustees of a pre-2006 life interest trust receive mineral royalties for gravel extraction. These have been treated as 25% income and 75% capital for trust accounting purposes but as dictated by HMRC all of the royalties have been charged to basic rate income tax on the trustees. Six years’ ago the life tenant agreed to the payment of the 75% share to the remaindermen on an ongoing basis so each year 25% was paid out to her and the remaining 75% was paid in equal shares among the remaindermen. The life tenant has now died.

Could readers advise on whether the payments made to the remaindermen will qualify for exemption from inheritance tax (IHT) as gifts from surplus income. They were regular gifts made by the life tenant from income receipts (albeit they were treated as capital in trust law). Otherwise ...