The measure

Anti-avoidance legislation has been introduced to stop two types of tax planning which seek to avoid the inheritance tax ('IHT') charge when transferring property into a trust.

Who will be affected?

A settlor who retains a reversionary interest in a newly established trust. The reversionary interest is valued as part of their estate which limits the value transferred. This strategy was an intermediate planning stage in passing on assets to an ultimate beneficiary. The anti-avoidance measures establishes a chargeable event for IHT purposes when the reversionary interest comes to an end, either by gifting it away or by the individual taking the actual interest.

A UK domiciled individual purchasing a right to income from an offshore excluded property trust (a trust interest established by a non-UK domiciled individual). The benefit of such a trust is that foreign assets held in the trust are outside the scope of IHT. As such, the purchaser's acquired trust interest immediately falls outside his IHT estate. Here, the anti-avoidance measures simply reverse the tax advantages and so defeat the tax planning. Where a UK domiciled person purchases an interest from an excluded property trust by way of an arm's length transaction, that interest will now fall into their estate.

When?

The anti-avoidance legislation prevents a tax advantage for anyone establishing the arrangement on or after 9 December 2009.

Where either of the planning strategies has been implemented prior to 9 December, the tax advantages should remain.