IHTM16243 | Close companies and settled property: the taxable amount

The principle upon which the taxable amount transferred by close companies (IHTM14851) is established is that where an amount is transferred by a close company and ends up wholly or in part still in the beneficial ownership of the individual participator, or still held within the settled fund, there is no claim on the property or part because the value/property remains in the same hands. The taxable amount is represented by what does not remain in the beneficial ownership of the individual, or in settled property cases, what does not remain within the settled fund. There is an example of this at IHTM16247. .

This result has some kinship with IHTA84/S53 (2).

Where a trustee of a settlement is a participator in a close company IHTA84/S99 (1)(a) brings in IHTA84/S94 (2)(a) to provide that if a qualifying interest in possession subsists in the settled property a part of that interest in possession corresponding to such part of the property with a value equal to the part that has been apportioned shall be treated for the IHT charge as coming to an end on the making of the transfer (by the company).

S99(2) and S99(3) define the taxable amount.

The provisions of IHTA84/Part IV do not provide any special charging section where settled property is concerned. Instead, the system for settled property provides a ‘special’ framework and then directs the notional transfers to their own existing taxing and rate sections, with the result that the claims produced by this legislation are the familiar IHTA84/S52 (1) for interests in possession ceasing. This basis of claim is artificial because in reality the interest does not cease.

As a result such an event, occurring after 16 March 1987, can be a PET (IHTM04057) if it would have been so under a plain IHTA84/S52 (1) claim [i.e. if it was not then becoming held on non - interest in possession trusts]. This contrasts with the treatment of absolute gifts by close companies which, under IHTA84/S98(3), are never PETs.

In similar vein, annual and other exemptions (IHTM16082) available on a claim under IHTA84/S52 (1) are allowable.