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HMRC internal manual

Capital Gains Manual

2006 IHT changes: IHT treatment from 22 March 2006

Where the interest in possession is a pre-Budget interest in possession, a transitionalserial interest an immediate post death interest or an actual or deemed interest for adisabled person, it is treated in the same way as applied for IHT purposes before 22 March2006, it will form part of the holder’s estate for inheritance tax purposes and thiswill 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 itis a certain type of business or agricultural property, see s.165 TCGA andCG36547.

Where the interest in possession arises in a new inter vivos trust set up on or after 22March 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 ofthe estate of the holder for IHT purposes at the date of death. Hence the settled propertyis not generally subject to IHT on the death of the holder (unless the reservation ofbenefit rules apply or the settlement comes to an end) and in any case there is no capitalgains tax death uplift. Equally hold over relief is more likely to be available ontransfers out of such a trust even if the settled property is not business or agriculturalproperty because the transfer may well be a chargeable transfer, see s.260(2)(a) TCGA andCG36547.

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

This chapter does not cover every possible circumstance, and in particular does not dealwith employee benefit trusts, charitable trusts, and other cases with a special treatmentfor 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 CGand IHT Manuals. Its purpose is to help one understand how the taxes relate to each other.

As some of the CGT provisions changed on 6 April 2006, whereas the IHT changes mostlyoccurred on 22 March 2006 the checklists below do not necessarily apply to events from 22March 2006 to 5 April 2006 inclusive. Changes included in Schedule 20 FA 2006 took effecton 22 March, for example the change in rules for the death uplift. The restriction ofhold-over relief in cases involving minor children or step children, unless married or ina civil partnership, applied from 6 April 2006.