IHTM04086 - Settled property: the charge where the value of settled property is reduced

Where the trustees enter into a transaction (of the kind specified below) which has the effect of reducing the value of the property (IHTM04030) in which any beneficiary has an interest in possession, (IHTM16000) IHTA84/S52 (3) applies. The result is that the interest of that beneficiary is deemed ‘to come to an end’ to an extent equal to the reduction in value.

A transaction is caught by the sub-section if it is made with a person who is, or is connected with (as defined by IHTA84/S270)

• any person beneficially entitled (IHTM04031) to an interest in any of the property comprised in the settlement, or
• any person for whose benefit any of the settled property could be applied.

The section does not apply if the transaction would not be a transfer of value (IHTM04024) if the trustees were beneficially entitled to the property. This means that if the trustees had owned the property personally and the transaction would have been excluded from the charge through, for example, IHTA84/S10, (disposition not intended to confer bounty) (IHTM04161) these provisions cannot apply.

Example

T has a life interest in a settlement which owns a majority holding in ABC Limited; a family company. The trustees decide to exchange the shares for shares in XYZ Limited; another family company. But because this holding is only a minority holding, the value received in exchange is substantially less.

There may be sound commercial reasons for the transaction (for example, rationalisation of activities which both companies carry out separately) in which case the process at the end of IHTA84/S52 (3) might apply. But otherwise the claim extends to that part of the interest in the settlement corresponding to the reduction in value of the shareholding.