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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Lifetime transfers: the charge to tax: grossing: settled property

You do not gross up when tax is charged under IHTA84/S52 (1) on the lifetime termination of an interest in possession (IIP) in settled property. This is so even if:

  • tax is immediately payable because the deemed transfer is not a Potentially Exempt Transfer (PET),
  • tax is paid by the deemed transferor (the person whose IIP has come to an end).

This is because under IHTA84/S52 (1) tax is charged ‘as if the value transferred had been equal to the value of the property in which his (the transferor’s) interest subsisted.’

Consequently, the loss to the estate (IHTM04054) concept does not apply, and so the value of the transferor’s estate immediately after the transfer is not relevant.

The exception

However where the IHTA84/S52 (1) charge on the termination of the IIP is the result of a partition of the settled fund

  • if it is a term of the partition agreement that the tax shall be paid out of the property remaining in settlement
  • the claim extends to the property required to meet the tax.

Refer to Technical to clarify the extent of the claim.