IHTM11062 | Settled property: what happens when an interest in possession devolves to the spouse or civil partner

Transfers before 22 March 2006

• The exemption for transfers between spouses or civil partners applies where one spouse or civil partner (IHTM11032) is beneficially entitled to an interest in possession (IHTM16061) in settled property and, before 22 March 2006, disposes of the interest to the other spouse or civil partner,

• dies and the property then passes to the other spouse or civil partner,

• the interest is terminated in some other way and the spouse or civil partner becomes beneficially entitled (IHTM04031) to the income or capital.

Example 1

Levi’s mother dies in 2005. In her will she leaves settled property to Levi for life, then to Levi’s wife, Ruby for life and on Ruby’s death to their children.

On Levi’s death spouse exemption applies.

Example 2

Property is put into trust for Luke for life. On Luke’s death in 2005 it passes to Robert absolutely. Robert dies before the termination of Luke’s interest. By Will Robert gives his interest expectant on Luke’s death to Luke’s wife.

Consequently, on Luke’s death the property passed to his spouse and the exemption applies.

Transfers between 22 March 2006 and 4 October 2008

The exemption for transfers between spouses or civil partners applies to settled property only where

• one spouse or civil partner (IHTM11032) is beneficially entitled to an interest in possession (IHTM16062) in settled property that began before 22 March 2006, and

• they die before 5 October 2008 and the property passes to the other spouse or civil partner

Example 3

Property is put into trust for Chris for life, under the will of his mother, who died in 1985. On Chris’s death the property passes to Chris’s wife, Paula, for life, and on her death to Chris and Paula’s children.

On Chris’s death, in September 2007, Paula acquires a transitional serial interest under FA2006, s49C.

Note: example 2 will still apply if Luke dies during the period 22 March 2006 to 4 October 2008, assuming that his life interest is an interest in possession.

Transfers after 5 October 2008

The exemption for transfers between spouses or civil partners applies to settled property only where

• one spouse or civil partner (IHTM11032) is beneficially entitled to an interest in possession (IHTM16062) in settled property that began before 22 March 2006, and

• they die on or after 5 October 2008 and the property then passes to the other spouse or civil partner.

Example 4

Property is put into trust for Lucy for life, under the will of her aunt, who died in September 2005. On Lucy’s death the property passes to her husband, Jason, and on Jason’s death it passes to Lucy and Jason’s children.

Note: example 2 will still apply if Luke dies on or after 5 October 2008, assuming that his life interest is a qualifying interest in possession (IHTM16062).