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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Settled property: the charge where an interest in possession comes to an end

Where the interest of a person beneficially entitled (IHTM04031) to an interest in possession (IIP) (IHTM16000) in settled property ‘comes to an end’ during their lifetime, IHTA84/S52 (1) applies. A charge (actual or potential) arises as if they had made a transfer of value, (IHTM04024) and as if the value transferred had been equal to the value of the property in which the interest subsisted. There is thus a deemed transfer of value (IHTM04025) on such an event. As a deemed transfer, it follows that exemptions for lifetime transfers (IHTM14131) will not apply, unless the legislation states otherwise.

With effect from 22 March 2006, the charge under S52 (1) is limited, in relation to interests in possession arising on or after 22 March 2006, to the termination of interests that are:

  • an immediate post-death interest;
  • a disabled person’s interest, or
  • a transitional serial interest (IHTM16061)An interest comes to an end for the purposes of IHTA84/S52 (1) when it ceases to be in possession. This is material in particular where a revocable appointment is made which over-rides an IIP.

Where a power is exercised so as to appoint the fund (or part of it) away from the person currently entitled to the IIP, that person’s interest is considered to come to an end on the exercise of the power (or on any later date specified), and not on the later payment or transfer which implements the appointment. This applies even if the appointment is expressed in terms of a sum of money.