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Clarification has been provided on the inheritance tax treatment of
transitional serial interests. A transitional serial interest occurs when an
individual, who has an entitlement to the income from a trust, passes that
entitlement to another beneficiary. The period in which this can be done has
been extended from 5 April 2008 to 5 October 2008, taking effect for any
such changes from 22 March 2006.
The clarification applies where the entitlement to income is replaced by a
new entitlement by the same individual, and makes it clear that if this
situation occurs then the interest will not be within the inheritance tax
rules brought in by Finance Act 2006. This means that no inheritance tax
charges may apply on every 10 year anniversary of the trust and when
payments of the trust capital is paid out. The clarification covered any
such reorganisations from 22 March 2006 to 5 October 2008.
Our view
The clarification is welcome and provides certainty to a previously
unclear section of legislation. Such certainty is an important feature
of an effective tax system.
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