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HMRC internal manual

Inheritance Tax Manual

Employee benefit trusts: conditions for relief: sub clauses

The use of the word ‘or’ in IHTA84/S86(1)

The word ‘or’ between the sub-clauses, and between the individual parts of IHTA84/S86(1), means that the relief will apply if the beneficiaries are restricted to only one of the two classes. Although you could interpret this as meaning that the relief would not apply if the trust was for the benefit of both categories of person this is not what is meant by this paragraph.

‘Relationship to’ and ‘dependence on’ in IHTA/S86(1)(b)

The words ‘relationship to’ and ‘dependence on’ in IHTA84/S86(1)(b) are not defined in the Act. Both can be interpreted widely and you should interpret their meaning as follows:

  • ‘Relationship to’ would include relatives, such as a brother, sister, ancestor, direct descendant, uncle, aunt, nephew or niece, adopted or illegitimate child of the member.
  • ‘Dependence on’ is generally restricted to those who are financially dependent on the person in IHTA84/S86(1)(a). A child of a member may always be regarded as a dependant until they reach age 18 or cease to be in full time education (or vocational training, if later).
  • A ‘dependant does not need not be a relative of the member.
  • A couple who are mutually financially dependent on one another could be said to have a ‘dependence on’ one another.
  • The wording is considered wide enough to include cohabiting partners.