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HMRC internal manual

Inheritance Tax Manual

Settled property: charges on protective trusts

The failure or determination after 11 April 1978 of the principal beneficiary’s interest in possession (IHTM16000) (IIP) which is subject to protective trusts (IHTM16000) is ignored for IHT purposes. The beneficiary is treated as having an IIP in the property which under general law is then treated as held on statutory (or similar) discretionary trusts, IHTA84/S88.

Thus, if capital is advanced to a person other than the principal beneficiary, there will be a charge to IHT as if the IIP had come to an end. (IHTM04084) Similarly, on the death of the beneficiary, the trust fund forms part of their estate. (IHTM04029)

If the principal beneficiary’s interest in possession came to an end before 12 April 1978 and, on that event, the settled property became subject to discretionary trusts, the property is not relevant property and the ten yearly and proportionate charges do not apply.

Tax is charged when the

  • property ceases to be held on those trusts, IHTA84/S73 (2)(a), but distributions for the benefit of the beneficiary who had the protected interests are exempt, or
  • trustees make a disposition (IHTM04023) which reduces the value of the property so held, IHTA84/S73 (2)(b). Under IHTA84/S70 (4) relief for dispositions not intended to confer bounty (

IHTM04161) and a grant of a tenancy of agricultural property (IHTM04230) can apply.