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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Settled property: acquisition of a reversionary interest from a charity (anti-avoidance)

Most reversionary interests (IHTM16231) are excluded property. This could provide an opportunity to avoid Inheritance Tax in the following circumstances.


Anna wishes to make a gift of £100,000 to Bill. Anna settles the £100,000 on herself for a short term, after which it will revert to Bill. Bill immediately sells his future right to receive the assets to the charity for £99,000. Anna then buys the reversion back from the charity for £100,000 to allow the charity a small profit.


Without the following provision, the payment by Anna would be exempt.

But, under IHTA84/S56 (1) charity exemption does not apply to property

  • given to a charity (IHTM11112) in return for a reversionary interest (IHTM16231) in settled property (IHTM16000), if
  • by reason of IHTA84/S55 (1) that reversionary interest does not form part of the IHT estate of the person acquiring it - that is when the person acquiring it already has a prior interest in the same property

This provision is designed to prevent misuse of the charity exemption. In the example above, because of IHTA84/S55 (1) and IHTA84s/S56 (2), the reversion Anna purchases from the charity is not part of her estate and IHTA84/S10 (1) cannot apply to the transaction. Consequently the £100,000 Anna pays to the charity in consideration for the reversion is a transfer of value. But for IHTA84/S56 (1) that transfer of value would be exempt under IHTA84/S23 (1). The result would have been a gift of £99,000 from Anna to Bill without any charge to IHT. IHTA84/S56 (1) prevents this by making the £100,000 paid by Anna to the charity for the reversion into a chargeable transfer. It is not a potentially exempt transfer (PET) (IHTM14024) because the donee, the charity, is not an individual.