IHTM04167 - Dispositions not intended to confer bounty: application to settled property

The provisions of IHTA84/S10 apply to dispositions (IHTM04023) involving settled property, but only in limited circumstances. The application to both qualifying interest in possession (IIP) trusts (IHTM16000) and the special trusts (IHTM04098) under the discretionary trust provisions is the same. In both instances, the relief is only available where as a result of the transaction the value of the trust property is reduced. It is not available where property leaves the trust.

The provisions apply, for IIP trusts, when the value of the trust property is reduced (IHTM04086) and a charge under IHTA84/S52 (3) arises. Where the transaction is made between the trustees of the settlement and a person who is, or is connected with, the person who is beneficially entitled to an interest in the settled property, S52 (3) will only apply where the person became beneficially entitled to the interest on or after 22 March 2006 if it is an immediate post-death interest, a disabled person’s interest or a transitional serial interest (IHTM16061), S53 (3A).

For the special trusts, the provisions apply when a charge arises and the provisions of IHTA84/S70 are relevant.

In either circumstance, you need to apply both tests (IHTM04161) to the transaction as if the trustees were the owners of the settled property concerned. If the provisions of IHTA84/S10 would have applied in such circumstances, they can apply to the transaction that has reduced the value of the trust property.