TAX IMPLICATIONSThe Act came into force on 1 January 1997 (SI 96/2974), and certain of its provisions will have tax implications.Ss 12-13 of the Act for the first time confer on certain co-owners and trust beneficiaries a statutory right to occupy trust property.Provisions are made for possible compensation between beneficiaries (direct or by diversion of other available trust income) where one of the several eligible beneficiaries is excluded from occupation.Chris Jarman, a member of the Law Society's revenue law committee, identified a variety of tax questions arising from these provisions, and raised them with the Inland Revenue.

The Revenue emphasised that much will depend on the facts of individual cases, and its comments at this stage are only provisional.However, with that caveat, some of the main points from correspondence with the Revenue are:-- Compensation required to be paid to a non-occupying beneficiary will be taxable in his or her hands, but no deduction will be available to the paying beneficiary unless his or her occupation is for trade purposes.-- Income diverted under s 13(6)(b) is likely to be regarded as income of the beneficiary to whom it is diverted, not apparently of the beneficiary forgoing it.-- Depending on the detailed facts, the Revenue might regard the exclusion of a beneficiary (with or without compensation or diversion of income) as removing the beneficiary's interest in possession in the property.

The Revenue does not consider that the Act casts any doubt on its statement of practice SP 10/79.

Much may turn on the level of the compensation required, or on whether the diversion of income can be construed as a purely administrative adjustment to the distributio n of trust income rather than an appropriation of trust assets.-- Similarly, if a beneficiary simply chooses not to exercise his or her right of occupation, there is a risk that the Revenue will see this as a disposal of the beneficiary's interest in possession.-- The principles are no different whether the exclusion, or requirement of compensation, is directed by the trustees or by the court.-- The Revenue accepts in principle that the beneficiary under a sub-trust, such as the life tenant under the will of a deceased tenant in common, will not have a right of occupation under s 12 because he or she is not a beneficiary (within the relevant definition) of the trust of the land itself.

The impact of this in the context of the gifts with reservation rules for inheritance tax will need to be considered.FAMILY LAW IMPLICATIONS BY MARGARET RODGERS AND ANNE DAVIESThe significance for family lawyers of the Trusts of Land and Appointment of Trustees Act 1996 seems to have been ignored.

This legislative change will, it is suggested, have a major impact in the field of property disputes between co-owning spouses, and more importantly, co-owning cohabitants, if the judiciary takes a robust stand on the new powers available to them.

Increased power and discretion of the courts may be utilised to benefit cohabiting clients.When a relationship breaks down, the division of property or the proceeds of the sale can become problematic.

For a married couple, there is a greater degree of flexibility since ss 24 and 24A of the Matrimonial Causes Act 1973 (MCA) enable the court in divorce proceedings to make orders:-- transferring entitlement to property from one spouse to another or a child of the family;-- settling property on one spouse, by another, or a child of the family;-- varying any ante-nuptial or post-nuptial settlement; and-- requiring the sale of property, where the court has made maintenance orders or property adjustment orders.When exercising its powers, the court is directed to consider the list of factors set out in s 25 of the MCA, inter alia all the circumstances of the case, with the welfare of minors being a first consideration.

Income of the parties and financial responsibilities, conduct (good or bad) and contribution to the family (covering the 'housewife syndrome') are considered.The type of orders that have been made by courts hence vary considerably in accordance with the facts of the cases before them.

Certain generic types are clear -- for example Mesher orders for sale and division of proceeds but with postponement during dependency of children, or Hanlon orders for the transfer of property with compensation by a reduction of maintenance or possibly with an immediate lump-sum payment by way of compensation.

Martin orders are made where the property is settled on one spouse for life.For co-owning cohabitants on relationship breakdown, these types of remedies are limited.

The provisions of the MCA do not apply and the court's power arises from the provisions of s 30 of the Law of Property Act 1925 (LPA).

This was confirmed in Re Evers Trust [1980] 1 WLR 1327, where it was stated that in the case of cohabitants there was no power to adjust the property rights of the parties under s 30 of the LPA as could happen under s 24 of the MCA.The court is therefore obliged to follow the strict rules of land law.

However, while exercising its discretion to execute a trust for sale it can consider both the primary purpose of the trust (sale) and its underlying purpose (for example providing a home for a family) .In Dennis v McDonald [1982] 2 WLR 275, the court was faced with an application for an order for the sale of property jointly owned by an unmarried couple, with children.

The court refused to make an order for immediate sale, finding the prime object of the trust for sale was to provide a family home.

The court did however require an occupation rent to be paid, albeit that this may only occur under the LPA where an order for sale is actually made, and consequently the validity of the decision has been questioned.This difference in treatment between married and cohabiting couples may well change under the Act.

S 30 of the LPA is abolished and replaced by s 14, which has scope for a much wider range of orders by the courts.

S 14 states that any person who has an interest in property subject to a trust of land can apply to the court for an order, and when resolving the issue, '.

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the court may make any such order:a) relating to the exercise by the trustees of any other functions .

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., orb) declaring the nature or extent of a person's interest in property subject to the trust as the court thinks fit'.The powers of the court hence refer back to the powers of the trustees.

Under s 13 of the Act, the trustees may exclude or restrict entitlement to occupy, and may impose reasonable conditions, in particular, relating to the payment of outgoings, or compensation to the other party.

In reaching any decision, the trustees, and hence the courts, are to have regard to:-- the intentions of the person(s) creating the trust-- the purpose for which the land is held-- the circumstances and wishes of the beneficiaries entitled to occupy the landTaken together, ss 13 and 14 of the Act will make it easier for the courts to refuse to order a sale, since the Act does not see the sale of co-owned property as essential, or the only option permissible.

This will surely be of benefit to unmarried co-owners in dispute, or married couples who are not seeking divorce.

It could allow more references to issues currently only relevant under s 25 of the MCA.

The circumstances of the beneficiaries are specifically referred to in the Act and may include their financial needs and obligations, their age and physical situation.

Without any stretching of the reasoning, conduct can also be included -- no reasonable trustee would ignore it, so why should the court?To take account of these sorts of matters in dealing with cohabitants is potentially going against the grain of existing judicial reasoning.

But the legislation is clearly adopting a more flexible and discretionary stance.

Practitioners should therefore seek to pursue the traditional 'matrimonial' type orders when their cohabiting clients suffer a relationship breakdown if this is required in the particular case, since the Act is now giving the courts the power to grant their orders.

Whether the courts will accept this greater flexibility is another matter.

Practitioners may find they will need to point out the much wider scope that is implicit within the Act and encourage the court to accept its wider powers and make 'matrimonial orders' in non-matrimonial cases.