Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
, see all updates

Settled property: the charge where an interest in possession is disposed of.

Where a person who is beneficially entitled (IHTM04031) to an interest in possession (IIP) (IHTM16000) in settled property ‘disposes’ of their interest, IHTA84/S51 (1) applies. The disposal does not rank as an actual transfer of value (IHTM04024) but is treated as ‘the coming to an end of their interest’. Tax is charged in accordance with IHTA84/S52 (1): this means that the disposal is regarded as a deemed transfer of value (IHTM04025) and the lifetime exemptions (IHTM14131)are excluded.

Where the interest that’s disposed of is one in which the person became beneficially entitled to on or after 22 March 2006, S51 (1) only applies if the interest is an immediate post-death interest, a disabled person’s interest within S89B (1)(c) or (d)or a ‘transitional serial interest’ (IHTM16061).Where the interest that’s disposed of is one which the person became beneficially entitled before 22 March 2006 S51 (1) is disapplied if the provisions of S71A (trusts for a bereaved minor – IHTM42815) or S71D (18-to-25 trusts– IHTM42816) apply to the underlying property, S51 (1B).

A further exception here concerns a disposition that satisfies the conditions for relieff or maintenance of the family (IHTM04171), IHTA/S11. Where the conditions in s.11 are met, the disposal is not treated as bringing the interest to an end, IHTA84/S51 (2).

The word ‘disposal’ is not specially defined and hence has its ordinary English meaning. A beneficiary should be regarded as having disposed of their interest, for example, if they settle it on someone else; or if they charge it with an annuity; or assign it to someone else for a fixed term.

On the other hand a revocable mandate given by a beneficiary to pay income due in respect of his beneficial interest to another merely confers a running right to receive such income as and when it arises until the mandate is revoked: it neither disposes of nor determines the beneficial interest itself, which remains with the original beneficiary.