Allfrey v Allfrey & Ors

An arrangement approved under the Variation of Trusts Act 1958 is a variation rather than a resettlement where the existing trust continues in substance. Relevant considerations include whether the trust property, trustees, beneficial interests and administrative powers remain substantially the same, and whether the arrangement supplements the existing trusts rather than replacing them. There is no single decisive test. The question is one of construction, assessed practically and in the light of the parties’ intentions. Extending the trust period does not, without more, terminate or resettle the trust. An arrangement that preserves the existing trusts and beneficial interests, while modifying them to improve their operation, falls clearly on the variation side of the line.

The claimant and defendants were beneficiaries or potential beneficiaries of a family settlement created in 1986. The court had already approved an arrangement under section 1 of the Variation of Trusts Act 1958. The arrangement authorised accumulation of income to meet inheritance tax charges, extended the trust period, reserved part of the fund for later-born descendants and released a power of revocation.

The judgment addressed the parties’ request for reasons on whether the arrangement amounted in substance to a resettlement, which the court had no jurisdiction to approve under the 1958 Act. The central issue was whether the existing settlement continued, with modifications, or had been replaced by a new settlement.

1. The arrangement was a variation, not a resettlement. The court had jurisdiction under section 1 of the Variation of Trusts Act 1958 to approve it. The trust fund, the trustees and the existing administrative powers remained in place. The beneficial interests were not exhausted, and the terms of the existing settlement continued to govern the fund, subject to the agreed modifications (paras [21]–[22]).
2. The court applied the approach in Roome v Edwards [1982] AC 279, as explained in Swires v Renton [1991] STC 490. Whether a new settlement has been created is determined by construing the relevant instruments practically and in a common-sense manner. The usual indicia, such as separate property, trusts, trustees and disposition, are helpful but not decisive. The court must consider the circumstances as a whole and ascertain the parties’ intentions.
3. There is no bright-line or single litmus test. The preservation of the original trust, its administrative structure and its beneficial interests strongly supported classification as a variation. The arrangement’s purpose was to enhance the operation of the existing settlement by permitting accumulation of income to meet periodic inheritance tax charges.
4. The extension of the trust period did not itself produce a resettlement. The court relied on IRC v Holmden [1968] AC 685 and Wyndham v Egremont [2009] WTLR 1473, which treated prolongation of an existing trust as consistent with variation.
5. The court accepted that HMRC had correctly concluded that it would not argue that the arrangement was a resettlement for the purposes of section 71 of the Taxation of Chargeable Gains Act 1992 if the court approved the variation (para [23]).