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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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2006 IHT changes: IHT treatment before 22 March 2006

The main types of settlement for IHT were:

  1. Trusts with an interest in possession (CG36320) [“IIP” trusts];
  2. Accumulation and maintenance trusts (CG67044) [“A&M” trusts];
  3. Disabled trusts created after 9 March 1981 within IHTA84/S89. Note that if a disabled person had an interest in possession the trust was treated as a normal IIP trust for IHT.. [“Disabled deemed IIP” trusts];
  4. Other trusts without an interest in possession, except where there was a specific exemption. [“Other non-IIP” trusts];
  5. Other cases where for IHT there was deemed to be an interest in possession, in particular protective trusts where Trustee Act 1925/S33 has come into play on forfeiture of the interest in possession, and leases for life. [“Deemed IIP” trusts].

For IHT, where there was a deemed IIP the treatment was the same as that for an actual IIP. Broadly the tax applied as if the individual with the actual or deemed interest in possession directly owned the asset. So in particular on death the settled property was aggregated with the estate of the deceased, and other transfers in and out were generally Potentially Exempt Transfers [“PET”s] unless the spouse exemption applied. If the person making the transfer into the settlement also held the IIP then it was disregarded for IHT as a gift to himself.

Lifetime gifts into A&M trusts were PETs. The occasion on which the beneficiary became entitled to assets, or an interest in possession in assets was exempt under IHTA84/S71 (4). The same was true if the trust came to an end on the beneficiary’s death. If exceptionally property passed to someone other than a relevant beneficiary, but during the relevant beneficiary’s lifetime, this was a chargeable transfer.

Transfers into and out of Other non-IIP trusts, except from other such trusts, were chargeable transfers. In addition there was deemed to be a chargeable transfer every ten years since the formation of the settlement.

In the following paragraphs the most common events are analyzed for IHT, CGT and hold-over relief.

The absence of a charge because the amount fell within the IHT nil-rate band, including cases where the 100% exemptions for business assets or agricultural assets applied, did not prevent there being a chargeable transfer.