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Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 1 — “Trusts for bereaved minors”, “age 18-to-25 trusts” and “accumulation and maintenance” trusts

384

 

charge under section 71E above (whether or not it has

remained so comprised).

71G     

Calculation of tax charged under section 71E in all other cases

(1)   

Where—

(a)   

tax is charged under section 71E above, and

5

(b)   

the tax does not fall to be calculated in accordance with

section 71F above,

   

the tax is calculated in accordance with this section.

(2)   

The amount on which the tax is charged is—

(a)   

the amount by which the value of property which is

10

comprised in the settlement and to which section 71D above

applies is less immediately after the event giving rise to the

charge than it would be but for the event, or

(b)   

where the tax is payable out of settled property to which

section 71D above applies immediately after the event, the

15

amount which, after deducting the tax, is equal to the amount

on which tax would be charged by virtue of paragraph (a)

above.

(3)   

The rate at which the tax is charged is the rate that would be given

by subsections (6) to (8) of section 70 above—

20

(a)   

if the reference to section 70 above in subsection (8)(a) of that

section were a reference to section 71D above,

(b)   

if the other references in those subsections to section 70 above

were references to section 71E above, and

(c)   

if, for the purposes of section 70(8) above, property—

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(i)   

which is property to which section 71D above applies,

(ii)   

which, immediately before it became property to

which section 71D above applies, was property to

which section 71 applied, and

(iii)   

which ceased on that occasion to be property to which

30

section 71 above applied without ceasing to be settled

property,

   

had become property to which section 71D above applies not

on that occasion but on the occasion (or last occasion) before

then when it became property to which section 71 above

35

applied.

71H     

Sections 71A to 71G: meaning of “parent”

In sections 71A to 71G above “parent” includes step-parent.”

      (2)  

Sub-paragraph (1) shall be deemed to have come into force on 22nd March

2006.

40

Section 71 of IHTA 1984 not to apply to property settled on or after 22nd March 2006

2     (1)  

Section 71 of IHTA 1984 (accumulation and maintenance trusts) is amended

as follows.

      (2)  

In subsection (1) (settled property to which section applies, subject to

subsection (2)), for “subsection” substitute “subsections (1A) to”.

45

 

 

Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 2 — Interests in possession: when settled property is part of beneficiary’s estate

385

 

      (3)  

After subsection (1) insert—

“(1A)   

This section does not apply to settled property at any particular time

on or after 22nd March 2006 unless this section—

(a)   

applied to the settled property immediately before 22nd

March 2006, and

5

(b)   

has applied to the settled property at all subsequent times up

to the particular time.

(1B)   

This section does not apply to settled property at any particular time

on or after 22nd March 2006 if, at that time, section 71A below applies

to the settled property.”

10

      (4)  

Where a chargeable transfer to which section 54A of IHTA 1984 applies was

made before 22nd March 2006, that section has effect in relation to that

transfer as if references in that section to section 71 of IHTA 1984 were to

section 71 of IHTA 1984 without the amendments made by sub-paragraphs

(2) and (3).

15

      (5)  

There is no charge to tax under section 71 of IHTA 1984 in a case where

settled property ceases, by the operation of the subsection (1B) inserted into

that section by this paragraph, to be property to which that section applies.

      (6)  

Sub-paragraphs (1) to (5) shall be deemed to have come into force on 22nd

March 2006.

20

Section 71 of IHTA 1984 to cease to apply to certain settled property from 6th April 2008

3     (1)  

In section 71(1)(a) of IHTA 1984 (section applies to settled property only if

one or more persons will become beneficially entitled on or before reaching

a specified age not exceeding 25)—

(a)   

for “twenty-five” substitute “eighteen”, and

25

(b)   

omit “or to an interest in possession in it”.

      (2)  

Sub-paragraph (1) comes into force on 6th April 2008 but only for the

purpose of determining whether, at a time on or after that day, section 71 of

IHTA 1984 applies to settled property.

      (3)  

There is no charge to tax under section 71 of IHTA 1984 in a case where—

30

(a)   

settled property ceases, on the coming into force of sub-paragraph

(1), to be property to which that section applies, but

(b)   

that section would immediately after the coming into force of sub-

paragraph (1) apply to the settled property but for the amendments

made by sub-paragraph (1).

35

Part 2

Interests in possession: when settled property is part of beneficiary’s estate

Aggregation with person’s estate of property in which interest in possession subsists

4     (1)  

In section 49 of IHTA 1984, after subsection (1) insert—

“(1A)   

Where the interest in possession mentioned in subsection (1) above

40

is one to which the person becomes beneficially entitled on or after

22nd March 2006, subsection (1) above applies in relation to that

interest only if, and for so long as, it is—

 

 

Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 2 — Interests in possession: when settled property is part of beneficiary’s estate

386

 

(a)   

an immediate post-death interest,

(b)   

a disabled person’s interest, or

(c)   

a transitional serial interest.

(1B)   

Where the interest in possession mentioned in subsection (1) above

is one to which the person became beneficially entitled before 22nd

5

March, subsection (1) above does not apply in relation to that interest

at any time when section 71A below applies to the property in which

the interest subsists.”

      (2)  

Sub-paragraph (1) shall be deemed to have come into force on 22nd March

2006.

10

“Immediate post-death interests” and “transitional serial interests”

5     (1)  

In IHTA 1984, after section 49 insert—

“49A    

Immediate post-death interest

(1)   

Where a person (“L”) is beneficially entitled to an interest in

possession in settled property, for the purposes of this Chapter that

15

interest is an “immediate post-death interest” only if the following

conditions are satisfied.

(2)   

Condition 1 is that the settlement was effected by will or under the

law relating to intestacy.

(3)   

Condition 2 is that L became beneficially entitled to the interest in

20

possession on the death of the testator or intestate.

(4)   

Condition 3 is that—

(a)   

section 71A below does not apply to the property in which

the interest subsists, and

(b)   

the interest is not a disabled person’s interest.

25

(5)   

Condition 4 is that Condition 3 has been satisfied at all times since L

became beneficially entitled to the interest in possession.

49B     

Transitional serial interest

(1)   

Where a person (“B”) is beneficially entitled to an interest in

possession in settled property (“the current interest”), for the

30

purposes of this Chapter that interest is a “transitional serial interest”

only—

(a)   

if the following conditions are met, or

(b)   

if, and to the extent that, section 49C below so provides.

(2)   

Condition 1 is that—

35

(a)   

the settlement commenced before 22nd March 2006, and

(b)   

immediately before 22nd March 2006, the property then

comprised in the settlement was property in which B, or

some other person, was beneficially entitled to an interest in

possession (“the prior interest”).

40

(3)   

Condition 2 is that the prior interest came to an end at a time on or

after 22nd March 2006 but before 6th April 2008.

 

 

Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 2 — Interests in possession: when settled property is part of beneficiary’s estate

387

 

(4)   

Condition 3 is that B became beneficially entitled to the current

interest at that time.

(5)   

Condition 4 is that—

(a)   

section 71A below does not apply to the property in which

the interest subsists, and

5

(b)   

the interest is not a disabled person’s interest.

49C     

Transitional serial interest: contracts of life insurance

(1)   

Where—

(a)   

a person (“C”) is beneficially entitled to an interest in

possession in settled property (“the present interest”), and

10

(b)   

on C’s becoming beneficially entitled to the present interest,

the settled property consisted of, or included, rights under a

contract of life insurance entered into before 22nd March

2006,

   

the present interest so far as subsisting in rights under the contract,

15

or in property comprised in the settlement that directly or indirectly

represents rights under the contract, is a “transitional serial interest”

for the purposes of this Chapter if the following conditions are met.

(2)   

Condition 1 is that—

(a)   

the settlement commenced before 22nd March 2006, and

20

(b)   

immediately before 22nd March 2006—

(i)   

the property then comprised in the settlement

consisted of, or included, rights under the contract,

and

(ii)   

those rights were property in which C, or some other

25

person, was beneficially entitled to an interest in

possession (“the earlier interest”).

(3)   

Condition 2 is that—

(a)   

the earlier interest came to an end at a time on or after 6th

April 2008 (“the earlier-interest end-time”) on the death of the

30

person beneficially entitled to it and C became beneficially

entitled to the present interest—

(i)   

at the earlier-interest end-time, or

(ii)   

on the coming to an end, on the death of the person

beneficially entitled to it, of an interest in possession

35

to which that person became beneficially entitled at

the earlier-interest end-time, or

(iii)   

on the coming to an end of the second or last in an

unbroken sequence of two or more consecutive

interests in possession to the first of which a person

40

became beneficially entitled at the earlier-interest

end-time and each of which ended on the death of the

person beneficially entitled to it, or

(b)   

C became beneficially entitled to the present interest—

(i)   

on the coming to an end, on the death of the person

45

entitled to it, of an interest in possession that is a

transitional serial interest under section 49B(1)(a)

above, or

 

 

Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 2 — Interests in possession: when settled property is part of beneficiary’s estate

388

 

(ii)   

on the coming to an end of the second or last in an

unbroken sequence of two or more consecutive

interests in possession the first of which was a

transitional serial interest under section 49B(1)(a)

above and each of which ended on the death of the

5

person beneficially entitled to it.

(4)   

Condition 3 is that rights under the contract were comprised in the

settlement throughout the period beginning with 22nd March 2006

and ending with C’s becoming beneficially entitled to the present

interest.

10

(5)   

Condition 4 is that—

(a)   

section 71A below does not apply to the property in which

the present interest subsists, and

(b)   

the present interest is not a disabled person’s interest.”

      (2)  

Sub-paragraph (1) shall be deemed to have come into force on 22nd March

15

2006.

Disabled persons’ trusts: meaning of “disabled person’s interest” and “disabled person”

6     (1)  

After section 89 (trusts for disabled persons) insert—

“89A    

Self-settlement by person with condition expected to lead to disability

(1)   

This section applies to property transferred by a person (“A”) into

20

settlement on or after 22nd March 2006 if—

(a)   

A was beneficially entitled to the property immediately

before transferring it into settlement,

(b)   

A satisfies the Commissioners for Her Majesty’s Revenue

and Customs that, when the property was transferred into

25

settlement, A had a condition that it was at that time

reasonable to expect would have such effects on A as to lead

to A becoming—

(i)   

a person falling within section 89(4)(a) above,

(ii)   

in receipt of an attendance allowance mentioned in

30

section 89(4)(b) above, or

(iii)   

in receipt of a disability living allowance mentioned

in section 89(4)(c) above by virtue of entitlement to

the care component at the highest or middle rate, and

(c)   

the property is held on trusts—

35

(i)   

under which, during the life of A, no interest in

possession in the settled property subsists, and

(ii)   

which secure that Conditions 1 and 2 are met.

(2)   

Condition 1 is that if any of the settled property is applied during A’s

life for the benefit of a beneficiary, it is applied for the benefit of A.

40

(3)   

Condition 2 is that any power to bring the trusts mentioned in

subsection (1)(c) above to an end during A’s life is such that, in the

event of the power being exercised during A’s life, either—

(a)   

A or another person will, on the trusts being brought to an

end, be absolutely entitled to the settled property, or

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Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 2 — Interests in possession: when settled property is part of beneficiary’s estate

389

 

(b)   

on the trusts being brought to an end, a disabled person’s

interest within section 89B(1)(a) or (c) below will subsist in

the settled property.

(4)   

If this section applies to settled property transferred into settlement

by a person, the person shall be treated as beneficially entitled to an

5

interest in possession in the settled property.

(5)   

For the purposes of subsection (1)(b)(ii) above, assume—

(a)   

that A will meet the conditions as to residence under section

64(1) of whichever of the 1992 Acts is applicable, and

(b)   

that there will be no provision made by regulations under

10

section 67(1) and (2) of that Act.

(6)   

For the purposes of subsection (1)(b)(iii) above, assume—

(a)   

that A will meet the prescribed conditions as to residence

under section 71(6) of whichever of the 1992 Acts is

applicable, and

15

(b)   

that there will be no provision made by regulations under

section 72(8) of that Act.

(7)   

For the purposes of subsection (3) above, ignore—

(a)   

power to give directions as to the settled property that is

exercisable jointly by the persons who between them are

20

entitled to the entire beneficial interest in the property, and

(b)   

anything that could occur as a result of exercise of any such

power.

(8)   

In this section “the 1992 Acts” means—

the Social Security Contributions and Benefits Act 1992, and

25

the Social Security Contributions and Benefits (Northern

Ireland) Act 1992.

89B     

Meaning of “disabled person’s interest”

(1)   

In this Act “disabled person’s interest” means—

(a)   

an interest in possession to which a person is under section

30

89(2) above treated as beneficially entitled,

(b)   

an interest in possession to which a person is under section

89A(4) above treated as beneficially entitled,

(c)   

an interest in possession in settled property (other than an

interest within paragraph (a) or (b) above) to which a

35

disabled person is beneficially entitled if the settled property

was transferred into settlement on or after 22nd March 2006,

or

(d)   

an interest in possession in settled property (other than an

interest within paragraph (a) or (b) above) to which a person

40

(“A”) is beneficially entitled if—

(i)   

A is the settlor,

(ii)   

A was beneficially entitled to the property

immediately before transferring it into settlement,

(iii)   

A satisfies Her Majesty’s Commissioners for Revenue

45

and Customs as mentioned in section 89A(1)(b)

above,

 

 

Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 2 — Interests in possession: when settled property is part of beneficiary’s estate

390

 

(iv)   

the settled property was transferred into settlement

on or after 22nd March 2006, and

(v)   

the trusts on which the settled property is held secure

that, if any of the settled property is applied during

A’s life for the benefit of a beneficiary, it is applied for

5

the benefit of A.

(2)   

Subsections (4) to (6) of section 89 above (meaning of “disabled

person” in subsection (1) of that section) have effect for the purposes

of subsection (1)(c) above as they have effect for the purposes of

subsection (1) of that section.

10

(3)   

Section 71D above does not apply to property in which there subsists

a disabled person’s interest within subsection (1)(c) above (but see

also section 71D(5) above).”

      (2)  

In section 89, after subsection (4) insert—

“(5)   

The reference in subsection (1) above to a disabled person includes,

15

in relation to any settled property, a reference to a person who, when

the property was transferred into settlement,—

(a)   

would have been in receipt of attendance allowance under

section 64 of either of the Acts mentioned in subsection (4)(b)

above had provision made by regulations under section 67(1)

20

or (2) of that Act (non-satisfaction of conditions for

attendance allowance where person is undergoing treatment

for renal failure in a hospital or is provided with certain

accommodation) been ignored, or

(b)   

would have been in receipt of disability living allowance by

25

virtue of entitlement to the care component at the highest or

middle rate had provision made by regulations under section

72(8) of either of the Acts mentioned in subsection (4)(c)

above (no payment of disability living allowance for persons

for whom certain accommodation is provided) been ignored.

30

(6)   

The reference in subsection (1) above to a disabled person also

includes, in relation to any settled property, a reference to a person

who satisfies the Commissioners for Her Majesty’s Revenue and

Customs—

(a)   

that he would, when the property was transferred into

35

settlement, have been in receipt of attendance allowance

under section 64 of either of the Acts mentioned in subsection

(4)(b) above—

(i)   

had he met the conditions as to residence under

section 64(1) of that Act, and

40

(ii)   

had provision made by regulations under section

67(1) or (2) of that Act been ignored, or

(b)   

that he would, when the property was transferred into

settlement, have been in receipt of a disability living

allowance by virtue of entitlement to the care component at

45

the highest or middle rate—

(i)   

had he met the prescribed conditions as to residence

under section 71(6) of either of the Acts mentioned in

subsection (4)(c) above, and

 

 

 
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