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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Reverter to settlor: statutory restrictions on relief

The relief provisions do not apply where

  • the settlor (IHTM16000) had acquired a reversionary interest (IHTM16000) 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 provides 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 he was a participator or by trustees of a settlement in which he had an interest in possession. (IIP) (

IHTM16000)

However, both IHTA84/S53 (5)(a) and 53 (6) are limited by IHTA847/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

Property was settled on A for life with remainder to B absolutely. B settled his reversionary interest on A for life with remainder to himself; A’s life interest under the original settlement was then terminated.

No claim arose when B settled his reversion (because it was excluded property ). (IHTM04251) Nor did any claim arise when A’s original life interest was terminated (because A 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 A to B when A’s interest under the later settlement also terminated.