IHTM26212 | Property at more than one title: gifts out of different funds

From HM Revenue & Customs · Inheritance Tax Manual

IHTA84/S40 may apply where gifts are made out of two different funds. But it is important to understand what it means when it refers to ‘gifts out of different funds’.

The meaning is derived from IHTA84/S42 (1) which defines ‘gifts’ as ‘the benefit of any disposition or rule of law by which, on the making of the transfer, any property becomes the property of any person or applicable for any purpose’. The words ‘disposition or rule of law’ are designed to cover property passing under a Will (IHTM12041) or an intestacy (IHTM12101).

The word ‘gift’ for this part of the Act points to the title under which the benefit passes. Each separate title identifies a different fund.

Consequently

Chargeable lifetime transfers (IHTM14571) made in the seven years before death do not comprise a different fund, as they are not part of the death transfer (IHTM26214).
Each will trust or settlement in which the deceased had an interest in possession (IHTM16061) is a different fund.
Joint property (IHTM15011) passing by survivorship (IHTM15081) or under a survivorship destination (IHTM15050) is another fund, as is nominated property (IHTM15101).
The free estate may sometimes be divided into different funds. Most commonly, foreign property passing under a separate Will or foreign land devolving under foreign law forms a different fund to assets disposed of under a UK Will. If foreign assets produce a more complicated situation the case should be referred to Technical.
Where the estate includes an interest in a partnership (IHTM25091), sometimes the terms of the partnership provide for the surviving partners to take over the deceased’s share on payment of an amount which is lower than the open market value of the interest (for example, book value). The taxable difference accrues to the surviving partners under the terms of the Partnership Agreement (IHTM25092), and is a different fund, separate from the free estate.
Similarly, an interest in a partnership that accrues to the surviving partner(s) under the Partnership Agreement without payment is a different fund.
Each gift with reservation (IHTM14301) which is charged as part of the death estate must be treated as a different fund from the free estate, but see IHTM26214.