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HMRC internal manual

Inheritance Tax Manual

Government securities in foreign ownership: anti- avoidance provisions

There are special rules for property (IHTM04030) that has moved between settlements (IHTM16042) without it having passed through someone’s beneficial ownership (IHTM04031). In this context, beneficial ownership means outright or absolute ownership.

The rules are designed to deter possible tax avoidance through the transfer of property from one settlement, where the beneficiaries are or include UK residents (and domiciliaries), into a sub-settlement where the beneficiaries are all foreign persons.

The rules effectively deny the exclusion for FOTRA gilts (IHTM04291) unless the conditions for the exclusion are satisfied with regard to all the settlements involved, IHTA84/S48 (5). The rules apply

  • where, by the same disposition, (IHTM04023) property has moved from one settlement into another before 10 December 1981 and after 19 April 1978, or
  • where property moves between settlements after 9 December 1981 without any person having in the meantime become absolutely entitled to the property.

However, these anti-avoidance rules do not apply to property moving between settlements where

  • someone was entitled to a reversionary interest (IHTM16231) in the property expectant on the termination of a qualifying interest in possession (IHTM16062) under the first (or original) settlement, and
  • before 10 December 1981, they settled that reversionary interest on the trusts of the second/new settlement, IHTA84/S48 (6) or where
  • property held in a settlement moved into a sub-settlement before 20 April 1978, for example, where property in the first settlement was appointed by its trustees on the trusts of another settlement, the latter being the sub- settlement in relation to the appointed property. You should refer any such case to Technical to consider in the light of the relevant case law.