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HMRC internal manual

Inheritance Tax Manual

Instalment option: relevant property trusts

Charges under the relevant property trust regime need to be considered separately from charges on a lifetime cesser of a qualifying interest in possession (IHTM30281).

Under IHTA84/S227 (1) instalments are available if either

  • the tax attributable to the qualifying property is borne by the person benefiting from the transfer, or
  • the property concerned continues to be comprised in the settlement.

IHTA84/S227 (1)(b) makes the instalment facility available where the tax attributable to the chargeable event is borne by the beneficiary.

  • A proportionate charge under the relevant property trust regime is a chargeable transfer - IHTA84/S2 (3) - and the instalments basis under IHTA/S227 (1)(b) is available to a beneficiary of a relevant property trust.
  • In view of these conditions a taxable property may have dual qualification for instalments.

Example

If the trustees of a relevant property trust appoint a house to a beneficiary for life, on condition that they will bear the inheritance tax payable on the appointment, instalments treatment is available under IHTA84/S227 (1)(b) or IHTA84/S227 (1)(c).  If the trustees later appoint the house to that beneficiary absolutely, it ceases to be comprised within the settlement. Under IHTA84/S227 (5)(b) this is deemed to be a sale of the property and the instalment option under IHTA84/S227 (1)(c) would be lost. However, the beneficiary can still rely on IHTA84/S227 (1)(b) and thus the instalment option continues.

It should be noted that under IHTA84/S227 [last part] the persons paying the tax must elect for instalments treatment. They are not required to elect for a particular enabling sub section.

Qualifying property (relevant property trusts)

The qualifying property is the same as for potentially exempt transfers (PETs) (IHTM30251).

For control holdings (IHTM30253) of shares or securities, the control required is that of the trustees immediately prior to the chargeable transfer.