CG36540 - 2006 IHT changes: IHT treatment from 22 March 2006

Where the interest in possession is a pre-Budget (22 March 2006) interest in possession, a transitional serial interest, an immediate post death interest or an actual or deemed interest for a disabled person, it is treated in the same way as applied for IHT purposes before 22 March 2006, it will form part of the holder’s estate for inheritance tax purposes and this will mean the capital gains tax death uplift is available provided it is an actual IIP. Conversely hold over relief will not be available on a transfer out of the trust unless it is a certain type of business or agricultural property, see s.165 TCGA and CG36547.

Where the interest in possession arises in a new inter vivos trust set up on or after 22 March 2006 or a new IIP arises in an existing trust after 5th April 2008 it will generally (with a few exceptions) be Relevant Property for IHT and hence it will not form part of the estate of the holder for IHT purposes at the date of death. Hence the settled property is not generally subject to IHT on the death of the holder (unless the reservation of benefit rules apply or the settlement comes to an end) and in any case there is no capital gains tax death uplift. Equally hold over relief is more likely to be available on transfers out of such a trust even if the settled property is not business or agricultural property because the transfer may well be a chargeable transfer, see s.260(2)(a) TCGA and CG36547.

The consequence of the changes is that subject to certain transitional provisions for existing trusts, from 22 March 2006 most cases will be subject to the régime that applied before that date to ordinary trusts without interests in possession.

This chapter does not cover every possible circumstance, and in particular does not deal with employee benefit trusts, charitable trusts, and other cases with a special treatment for IHT, nor to cases where a company has an interest in possession.

This section is not intended as a substitute for the detailed guidance elsewhere in the CG and IHT Manuals. Its purpose is to help one understand how the taxes relate to each other.