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HMRC internal manual

Inheritance Tax Manual

Reverter to settlor: statutory restrictions on relief

The relief provisions do not apply where

  • the settlor had acquired a reversionary interest (IHTM16231) in the settled property for a consideration in money or money’s worth, IHTA84/S53 (5)(a) and IHTA84/S54 (3), or
  • their application depends upon a reversionary interest having been transferred into settlement on or after 10 March 1981, IHTA84/S53 (5)(b) and IHTA84/S 54 (3).

The first restriction is extended by IHTA84/S53 (6) and IHTA84/S 54 (3) which states that a person is ‘… treated as acquiring an interest for a consideration in money or money’s worth if he acquires it as a result of transactions which include a disposition (IHTM04023) for such consideration (whether to him or another) of that interest or of other property.’

This would apply, for example, if it were acquired by a close company in which they were a participator or by trustees of a settlement in which they had an interest in possession (IIP). (IHTM16060)

However, both IHTA84/S53 (5)(a) and 53 (6) are limited by IHTA84/S53 (7) and (8) where the reversion was acquired before 12 April 1978.

The second restriction was added in 1981 to counter the abuse illustrated below.

Example

A house was settled on Cerys for life with remainder to Duncan absolutely. Duncan settled his reversionary interest on Cerys for life with remainder to himself. Cerys’s life interest under the original settlement was then terminated.

No claim arose when Duncan settled his reversion because it was excluded property (IHTM04251). Nor did any claim arise when Cerys’s original life interest was terminated (because she then had another IIP in the property).

But for IHTA84/S53 (5), the relief provisions would have operated to allow a tax free transfer of the property from Cerys to Duncan when her interest under the later settlement also terminated.