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HMRC internal manual

Inheritance Tax Manual

Lifetime transfers - additional conditions: The transferee

The requirement in the first condition (IHTM25364) is that the transferee has owned the original property throughout the period from the date of transfer to the death of the transferor, IHTA84/S113A(3)(a) or the earlier death of the transferee, IHTA84/S113A (4).

‘The transferee’ is defined as the person who became the owner of the asset on the transfer, or where on the transfer the asset became (or remained) settled on relevant property trusts, the trustees of the settlement, IHTA84/S113A (8). In view of IHTA84/S49 (1), where after the transfer, the property is held on qualifying interest in possession (IHTM16060) trusts, the life tenant is the transferee.

The terms of the definition are precise, and where the asset became or remained settled property on the transfer:

  • where the trusts after the transfer are not a qualifying interest in possession, the first condition will not be satisfied if before the death

  • a beneficiary becomes absolutely entitled to the trust property, for example by reason of an appointment or termination of the trust, or

  • anyone becomes entitled to a qualifying interest in possession.

as the transferee – the trustees – no longer own the property.

  • where immediately after the transfer a beneficiary is entitled to a qualifying interest in possession in the income and before the death, that income interest comes to an end by, for example, a release, assignment, advance or apportionment, then 

  • if the income beneficiary’s interest is enlarged into an absolute interest, the first condition will be treated as satisfied, but

  • if the beneficial interest, whether capital or income, goes to anyone else, the condition will not be satisfied as the transferee – the original life tenant – will have ceased to own the asset.