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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Settled property: the charge where a close company is entitled to an interest in possession

Where a close company is entitled to an interest in possession (IIP) (IHTM16000) in settled property, IHTA84/S101 (1) ‘looks through’ the company and treats each participator as entitled to an appropriate share of the company’s interest. The one exception to this is in connection with a claim with the purchase of a reversion (IHTM04272) under IHTA84/S55.

If the participator’s share of the company is held beneficially, their estate (IHTM04029) includes an appropriate share of the settled property and so a transfer of value (IHTM04023) will occur when they die. A transfer of value would also be made by them in the event of a reduction in his share of the company otherwise than for full consideration.

If the participator’s share is held otherwise than in a beneficial capacity (typically as trustee of a settlement) then they are treated as entitled to the settled property only in that capacity.

If they are trustee of a settlement with non-IIP trusts then their share is treated as comprised in the settled funds to the extent that no IIP subsists under that settlement.

The same applies to the extent that there is an IIP, but in addition IHTA84/S101 (2)treats the life tenant etc as beneficially entitled to the trustee’s share of the company’s interest. As a result a transfer of value will occur when the life tenant dies and one would also be made by him in the event of a reduction in the trustee’s share of the company otherwise than for full consideration.

It follows that where a person who had an IIP in settled property assigns the interest toa close company wholly owned by him, there is in effect no change in the beneficial ownership and no claim arises - see IHTA84/S53 (2) and IHTA84/S101 (1).