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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
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Settled property: exclusion from exemption in connection with a reversionary interest

When applied to settled property, spouse or civil partner (IHTM11032) exemption is subject to certain general limitations and exceptions (IHTM11091). In addition there is one exception that only applies to settled property

  • where a person acquires a reversionary interest (IHTM16231) in settled property for a monetary consideration (IHTA/S56 (2))
  • the spouse or civil partner exemption does not apply in relation to the settled property when it becomes the property of the purchaser on the termination of the prior interest

For transfers on or after 22 March 2006, spouse or civil partner exemption only applies where the reversionary interest is a qualifying interest in possession (IHTM16061)

Example

Property is put into trust for Linda for life. On her death it passes to Ryan. Linda’s civil partner buys Ryan’s reversion (after April 1976). The property is not exempt under IHTA84/S18 when Linda’s life interest comes to an end.

 

This exception does not apply where the reversionary interest was bought before 16 April 1976. In addition, the exception does not apply to a transfer so far as it is a loan or a disposition (IHTM04023) allowing another person the use of property.

For the purposes of the exception, a person is treated as acquiring an interest for a monetary consideration if they acquire it ‘as a result of transactions which include a disposition for such consideration (whether to themselves or another) of that interest or of other property’. So spouse or civil partner exemption is excluded whether the reversion was purchased by the person beneficially entitled to it when the prior interest comes to an end or by a predecessor in title. If the reversion has been purchased at any stage, the exemption is excluded.

 

Example

Property is put into trust for Lee for life with remainder to Richard. Lee buys Richard’s reversion and then gives it to his wife.

The property is not exempt under IHTA84/S18 when Lee’s life interest comes to an end.

 

The previous paragraph includes a quote from IHTA84/S56 (5). The words ‘for such consideration’ apply only to events on or after 17 March 1987. You should refer to Technical any case before that date.

A person is treated as acquiring a reversion for the purposes of IHTA84/S56 (5) if it is acquired by a close company (IHTM16241) in which they are a participator or by the trustees of a settlement in which they have an interest in possession (IHTM16246). IHTA84/S56 (5) does not apply where the person concerned acquired the reversion before 12 April 1978 - IHTA84/S56 (8).