IHTM16091 | Termination of interest in possession: the effect of terminating the interest

From HM Revenue & Customs · Inheritance Tax Manual

If the interest has vested in possession, the beneficiary may enjoy it for many years, or - quite commonly - it may be brought to an end while the beneficiary is enjoying it.

The effect of bringing the beneficiary’s interest to an end is that the individual in question ceases to have an interest in possession, and a claim to inheritance tax under IHTA84/S52 (1) (IHTM04084) will normally arise if:

the beneficiary became beneficially entitled to the interest in possession before 22 March 2006, or
the beneficiary became beneficially entitled to the interest in possession on or after 22 March 2006 and it is an immediate post-death interest , a disabled person’s interest or a transitional serial interest

The beneficiary will be deemed the transferor.

IHTA84/S53(1A) provides that tax shall not be chargeable under IHTA84/S52 if

the person whose interest comes to an end became beneficially entitled to it before 22 March 2006,
the interest comes to an end on or after that date, and
immediately before it comes to an end, S71A (trusts for bereaved minors) or S71D (age 18-to-25 trusts) applies to the property in which the interest subsists.

IHTA84/S53(4A) provides that tax shall not be chargeable under IHTA84/S52 if:

Content shown with reduced fidelity

the settled property became comprised in the settlement before 30 October 2024, Immediately before 30 October 2024 the settled property was excluded property by virtue of IHTA84/S48(3) or S48(3A) meaning that, at the time the property became comprised in the settlement, the settlor was not domiciled in the UK and at 30 October the property was either: foreign situs property (and not within Schedule A1), or a holding in an Authorised Unit Trust (AUT) or Open Ended Investment Company (OEIC). the settor was not a formerly domiciled resident (IHTM13062) at 30 October 2024 the settlement did not involve a purchased interest in possession, The beneficiary must have become beneficially entitled to the interest in possession before 30 October 2024, At 30 October 2024 and at the date of termination of the interest, the settled property is foreign situs or a holding in an AUT or OEIC.

This is a transitional provision relating to the change to long-term UK residence (IHTM47022).