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HMRC internal manual

Inheritance Tax Manual

Trust created by a variation: distribution before the end of the short term interest

Under the concluding words of IHTA84/S142(4), the subsection does not apply

  • in relation to any distribution or application of property subject to the short-term interest
  • which occurs before the disposition or cesser of the short-term interest takes effect.

Accordingly, if there is an application or distribution of trust capital during the continuance of the short-term interest, the trusts actually applying from the death govern the IHT treatment of that event.


By Will, Leo leaves the whole estate equally to his children.  By a valid instrument of variation (IoV) within IHTA84/S142(1), the children settle £200,000 from the estate on trust for their mother for a period of 18 months from the date of death, with remainder to themselves.  Twelve months after the death, the whole of the fund is appointed to the grandchildren.

The IoV creates a short term interest (IHTM35133) which is ignored, so there is no spouse exemption and the estate remains chargeable on death.  However, when the appointment to the grandchildren takes place, the real position is taken into account.  So a charge to tax arises under IHTA84/S52 as the widow’s life interest has come to an end. (IHTM04084