The UK P&AA 2009 came into force on 6 April 2010. It simplified the rules against perpetuities and accumulations of income and made drafting wills and trusts easier.
It does not consolidate the law, so there are three different sets of rules that could in practice apply:
- Pre 1964 rules to instruments created on or before 15 July 1964
- The Perpetuities & Accumulations Act 1964 (1964 Act) to instruments created between 16 July 1964 and 5 April 2010
- P&AA 2009 for instruments created on or after 6 April 2010
It is an important principle of the legal system that property cannot be tied up in a trust for an indefinite period. Future interests created by a disposition must vest within a prescribed period of time or face the prospect of being void from the outset. The 1964 Act added to and modified the common-law rule, largely trying to prevent a void interest by introducing the ‘wait & see’ rule and the class closing rules.
The rule does not apply to (s.2):
- Relevant pension schemes i.e.
- Occupational pension schemes
- Personal pension schemes
However, it does apply to any resulting interests or rights arising under an instrument nominating pension scheme benefits and from exercising a power of advancement arising under a pension scheme.
The rule applies to (s.1):
- Trusts creating successive estates or interests
- Trusts where the estate or interest is subject to a condition precedent or subsequent
- Successive interests under the doctrine of executory bequests
- Powers of appointment
Perpetuity period (s.5)
There is one statutory period of 125 years from the date the instrument takes effect after the 5 April 2010; except:
- Special powers of appointment can only be exercised for the remainder of the perpetuity period specified in the instrument creating the power
- In the case of pension schemes – the period starts when the member became a member of the scheme
- The period only applies to wills executed after 5 April 2010
In certain circumstances, trustees of existing trusts may choose by deed to replace the perpetuity period with a fixed period of 100 years. They can only do this where the perpetuity period is specified by reference to a life or lives in being and it is difficult or not reasonably practicable to ascertain whether or not the lives have ended.
The 21-year limit is abolished for instruments that take effect after 5 April 2010, apart from charitable trusts and non-charitable purpose trust where the 21-year limitation still applies, subject to contrary intention (though the 21 years does not have to start with the trust); income of a non-charitable trust may be accumulated for the whole of the trust’s life.
- You can accumulate income for the whole of a person’s life, which could be useful for disabled person’s interests, or for the whole of the trust period so remove the 21 year limitation in your definitions
- There is no need to define the perpetuity period as it is automatically 125 years whatever your instrument says
- The trust period need not be for 125 years – it can be shorter and this may be essential in trusts to receive pension benefits where the member joined the scheme before the 5 April 2010
Deeds of variation executed after 5 April 2010 can create trusts with a perpetuity period of 125 years even though the deceased died before 6 April 2010 as the reading back under s.142 IHTA 1984 is merely for IHT.
All information contained in this Briefing Note is of a general informational nature and is intended to be helpful. It does not represent legal advice. Whilst reasonable endeavours are taken to ensure that information is accurate and up-to-date as at the date of publication, STEP and its contributing authors do not accept liability or responsibility for any loss or damage occasioned to any person acting or refraining from acting on any information contained in this Briefing Note. Specialist legal or other professional advice should be sought before entering (or refraining from entering) into any specific transaction. This Briefing Note is not intended to be directional in nature but informative.