CG36552 - 2006 IHT changes: IHT treatment from 22 March 2006: miscellaneous situations

There are various other situations which need explaining but cannot readily be set out in table form.

Events occurring inside a settlement

  1. Except where (c) below applies there is a chargeable transfer for IHT to the extent that something occurs so that settled property held on a trust outside the relevant property regime becomes held on a Relevant Property trust. This would generally be because the IIP terminates or the statutory power of advancement is exercised in such a way as to disqualify the trust from one of the other categories. Only the relevant half or lesser part would be affected in the latter case.
  2. There is a chargeable transfer for IHT if a Relevant Property trust becomes a disabled trust.
  3. There is not a chargeable transfer on 6 April 2008 if an A & M trust fails to meet the revised requirement of absolute entitlement at 18.
  4. There is a deemed chargeable transfer when a Relevant Property settlement reaches the tenth anniversary of its creation (whatever its class then) and every ten years thereafter.
  5. There is a chargeable transfer where the settlor of a settlement subject to the gifts with reservation rules for IHT dies.

As assets remain in the same settlement for CGT purposes there is generally no disposal for CGT purposes on any of these occasions unless bullet (e) above brings the settlement to an end, for example because it only lasts while the settlor is alive.

Transfers from one settlement to another

  1. There is a chargeable transfer for IHT if property held on trusts under the IIP regime is transferred to another settlement to be held as Relevant Property trust.
  2. There is a Potentially Exempt Transfer if property held on trusts within the IIP regime is transferred to another settlement to be held on trusts for a disabled person unless the disabled person or his spouse or civil partner holds the interest in possession.
  3. There is a chargeable transfer for IHT if property held on Relevant Property trusts is transferred to another settlement to be held on trusts for a disabled person unless it occurs within 90 days of a ten year charge.
  4. There is no chargeable transfer if a Relevant Property settlement transfers assets to another Relevant Property settlement. For the purposes of the ten year charge the assets transferred are treated as remaining in the first settlement.
  5. There may well be a chargeable transfer when property held on trusts for a bereaved minor (IHTM42815) or A & M trusts (IHTM42808) or 18-25 trusts (IHTM42816) ceases to be so held.
  6. There is always a disposal for CGT if assets pass from one settlement to another.

If there is a chargeable transfer on a transfer from one settlement to another TCGA92/S260 (2)(a) can apply unless a settlor, his spouse or civil partner or minor child or minor step-child (unless married or in a civil partnership) can or do benefit from the receiving settlement. Note in particular that a transfer from one Relevant Property settlement to another is not a chargeable transfer, so hold-over relief could only be available under S165.

If the assets qualify and there is no chargeable transfer then TCGA92/S165 can apply unless a settlor, his spouse or civil partner or minor child or step-child (unless married or in a civil partnership) can or do benefit from the receiving settlement.

IHTA84/S144

This applies where property comprised in a person’s estate on his death is settled by will, but no interest in possession has yet subsisted. If within two years of death assets are appointed to an individual or on an interest in possession, the appointment is treated for IHT purposes as if comprised in the will. Therefore it is not in itself a chargeable transfer.

If this is regarded as a disposal by the trustees for CGT purposes TCGA92/165 may apply, but TCGAS92/260 (2)(a) cannot.

General note

For Categories see CG36541.