IHT relevant property and interests in possession

Perhaps the most radical change made to the IHT rules by Sched 20 of the Finance Bill, upsetting decades if not centuries of practice, was largely to do away with s49 IHT Act 1984 for the future. This was the legislative provision under which the beneficiary of settled property, with an interest in possession, was to be treated as beneficially entitled to the property in which the interest in possession subsisted – at least for IHT purposes. The most obvious and immediate consequence of this change in the rules is that the making of a lifetime interest in possession settlement will no longer be treated effectively as a gift of the trust assets by the settlor to the life tenant. The making of the settlement will therefore be a chargeable transfer for IHT purposes, rather than a PET or, where the life tenant is the spouse or civil partner of the settlor, a fully exempt transfer. And where the life tenant is the settlor himself, the traditional ‘self-protection’ settlement will no longer be regarded as a non-event for IHT purposes.