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HMRC internal manual

Inheritance Tax Manual

Lifetime transfers: investigation issues: voidable transfers

IHTA84/S150 provides a mechanism where a chargeable transfer which has been set aside as being voidable can be treated, for inheritance tax purposes, as though it never took place. For this provision to apply there needs to be a claim made which

  • is made in writing
  • identifies the grounds for repayment
  • is signed and dated by the claimant(s), and
  • is made within four years after the claimant knew, or ought reasonably to have known, that the relevant transfer had been set aside.

Extent of the claim

It is important to identify the transfer as voidable, and not void from the start.

  • S150 provides that the transfer must have been valid until some action was taken to set it aside, and therefore its provisions do not extend to purported transfers which are void from the start, for example on the grounds of illegality.
  • The voidable transfer must also actually have been set-aside.
  • Where a valid claim is received, tax is not payable on the transfer which has been set aside as “voidable or otherwise defeasible”. Any tax that has already been paid by the claimant on that transfer is repayable. In addition, any tax payable by the claimant in connection with any other chargeable transfer should be recalculated on the basis that the voidable transfer had not occurred.

You can allow interest supplement (IHTM31665)

  • on the amount repaid as from the date of claim,
  • at the rate applicable to tax on lifetime transfers.

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Types of transfer

The transfers affected are likely to be

  • a “transaction at an undervalue” set aside under Insolvency Act 1986 S339 at the instance of the trustee of a bankrupt’s estate.
  • a “transaction defrauding creditors” set aside under Insolvency Act 1986 Ss423-425 at the instance of a victim of the transaction. Sections 339 and 423 of that Act catch most transactions which are not for full consideration in money or money’s worth.
  • a disposition made by one party to matrimonial proceedings with the intention of defeating a claim for financial relief, so far as set aside by the Court under the Matrimonial Causes Act 1973 S37.

(It does not apply to any disposition in relation to which an order is made under the Inheritance (Provision for Family and Dependants) Act 1975, S10, such orders being covered by IHTA84/S146)

The Northern Irish equivalent legislative provisions are, respectively

  • Article 312 of the Insolvency (NI) Order 1989
  • Articles 367 - 369 of the Insolvency (NI) Order 1989
  • Article 39 of the Matrimonial Causes (NI) Order 1978

The Scottish equivalent situations are

  • transactions entered into by a debtor which have the effect of creating a preference in favour of a creditor to the prejudice of the general body of creditors reducible under Bankruptcy (Scotland) Act 1985 S36. (See Gloag & Henderson 11th Ed at 53.18 [p.984] onwards)
  • voluntary alienations of property by a debtor at a time when they are insolvent reducible at common law or under the Bankruptcy (Scotland) Act 1985
  • dispositions reducible under the Succession (Scotland) Act 1964 S27. (This was repealed by the Divorce (Scotland) Act 1976 Sch 2 and the current provisions relating to financial settlements on divorce are contained in the Family Law (Scotland) Act 1985 - see Gloag & Henderson 11th Ed at 48.27 [p.830] onwards).