Office of Public Sector Information
SCHEDULE 20 continued PART 2 continued
(1) Where a person (“E”) is beneficially entitled to an interest in possession in settled property (“the successor interest”), that interest is a transitional serial interest for the purposes of this Chapter if the following conditions are met.
(2) Condition 1 is that—
(a) the settlement commenced before 22nd March 2006, and
(b) immediately before 22nd March 2006, the property then comprised in the settlement was property in which a person other than E was beneficially entitled to an interest in possession (“the previous interest”).
(3) Condition 2 is that the previous interest came to an end on or after 6th April 2008 on the death of that other person (“F”).
(4) Condition 3 is that, immediately before F died, F was the spouse or civil partner of E.
(5) Condition 4 is that E became beneficially entitled to the successor interest on F’s death.
(6) Condition 5 is that—
(a) section 71A below does not apply to the property in which the successor interest subsists, and
(b) the successor interest is not a disabled person’s interest.
(1) Where—
(a) a person (“C”) is beneficially entitled to an interest in possession in settled property (“the present interest”), and
(b) on C’s becoming beneficially entitled to the present interest, the settled property consisted of, or included, rights under a contract of life insurance entered into before 22nd March 2006,
the present interest so far as subsisting in rights under the contract, or in property comprised in the settlement that directly or indirectly represents rights under the contract, is a “transitional serial interest” for the purposes of this Chapter if the following conditions are met.
(2) Condition 1 is that—
(a) the settlement commenced before 22nd March 2006, and
(b) immediately before 22nd March 2006—
(i) the property then comprised in the settlement consisted of, or included, rights under the contract, and
(ii) those rights were property in which C, or some other person, was beneficially entitled to an interest in possession (“the earlier interest”).
(3) Condition 2 is that—
(a) the earlier interest came to an end at a time on or after 6th April 2008 (“the earlier-interest end-time”) on the death of the person beneficially entitled to it and C became beneficially entitled to the present interest—
(i) at the earlier-interest end-time, or
(ii) on the coming to an end, on the death of the person beneficially entitled to it, of an interest in possession to which that person became beneficially entitled at the earlier-interest end-time, or
(iii) on the coming to an end of the second or last in an unbroken sequence of two or more consecutive interests in possession to the first of which a person became beneficially entitled at the earlier-interest end-time and each of which ended on the death of the person beneficially entitled to it, or
(b) C became beneficially entitled to the present interest—
(i) on the coming to an end, on the death of the person entitled to it, of an interest in possession that is a transitional serial interest under section 49C above, or
(ii) on the coming to an end of the second or last in an unbroken sequence of two or more consecutive interests in possession the first of which was a transitional serial interest under section 49C above and each of which ended on the death of the person beneficially entitled to it.
(4) Condition 3 is that rights under the contract were comprised in the settlement throughout the period beginning with 22nd March 2006 and ending with C’s becoming beneficially entitled to the present interest.
(5) Condition 4 is that—
(a) section 71A below does not apply to the property in which the present interest subsists, and
(b) the present interest is not a disabled person’s interest.”
(2) Sub-paragraph (1) shall be deemed to have come into force on 22nd March 2006.
6 (1) After section 89 (trusts for disabled persons) insert—
(1) This section applies to property transferred by a person (“A”) into settlement on or after 22nd March 2006 if—
(a) A was beneficially entitled to the property immediately before transferring it into settlement,
(b) A satisfies the Commissioners for Her Majesty’s Revenue and Customs that, when the property was transferred into settlement, A had a condition that it was at that time reasonable to expect would have such effects on A as to lead to A becoming—
(i) a person falling within section 89(4)(a) above,
(ii) in receipt of an attendance allowance mentioned in section 89(4)(b) above, or
(iii) in receipt of a disability living allowance mentioned in section 89(4)(c) above by virtue of entitlement to the care component at the highest or middle rate, and
(c) the property is held on trusts—
(i) under which, during the life of A, no interest in possession in the settled property subsists, and
(ii) which secure that Conditions 1 and 2 are met.
(2) Condition 1 is that if any of the settled property is applied during A’s life for the benefit of a beneficiary, it is applied for the benefit of A.
(3) Condition 2 is that any power to bring the trusts mentioned in subsection (1)(c) above to an end during A’s life is such that, in the event of the power being exercised during A’s life, either—
(a) A or another person will, on the trusts being brought to an end, be absolutely entitled to the settled property, or
(b) on the trusts being brought to an end, a disabled person’s interest within section 89B(1)(a) or (c) below will subsist in the settled property.
(4) If this section applies to settled property transferred into settlement by a person, the person shall be treated as beneficially entitled to an interest in possession in the settled property.
(5) For the purposes of subsection (1)(b)(ii) above, assume—
(a) that A will meet the conditions as to residence under section 64(1) of whichever of the 1992 Acts is applicable, and
(b) that there will be no provision made by regulations under section 67(1) and (2) of that Act.
(6) For the purposes of subsection (1)(b)(iii) above, assume—
(a) that A will meet the prescribed conditions as to residence under section 71(6) of whichever of the 1992 Acts is applicable, and
(b) that there will be no provision made by regulations under section 72(8) of that Act.
(7) For the purposes of subsection (3) above, ignore—
(a) power to give directions as to the settled property that is exercisable jointly by the persons who between them are entitled to the entire beneficial interest in the property, and
(b) anything that could occur as a result of exercise of any such power.
(8) In this section “the 1992 Acts” means—
the Social Security Contributions and Benefits Act 1992, and
the Social Security Contributions and Benefits (Northern Ireland) Act 1992.
(1) In this Act “disabled person’s interest” means—
(a) an interest in possession to which a person is under section 89(2) above treated as beneficially entitled,
(b) an interest in possession to which a person is under section 89A(4) above treated as beneficially entitled,
(c) an interest in possession in settled property (other than an interest within paragraph (a) or (b) above) to which a disabled person becomes beneficially entitled on or after 22nd March 2006, or
(d) an interest in possession in settled property (other than an interest within paragraph (a) or (b) above) to which a person (“A”) is beneficially entitled if—
(i) A is the settlor,
(ii) A was beneficially entitled to the property immediately before transferring it into settlement,
(iii) A satisfies Her Majesty’s Commissioners for Revenue and Customs as mentioned in section 89A(1)(b) above,
(iv) the settled property was transferred into settlement on or after 22nd March 2006, and
(v) the trusts on which the settled property is held secure that, if any of the settled property is applied during A’s life for the benefit of a beneficiary, it is applied for the benefit of A.
(2) Subsections (4) to (6) of section 89 above (meaning of “disabled person” in subsection (1) of that section) have effect for the purposes of subsection (1)(c) above as they have effect for the purposes of subsection (1) of that section.
(3) Section 71D above does not apply to property in which there subsists a disabled person’s interest within subsection (1)(c) above (but see also section 71D(5) above).”
(2) In section 89, after subsection (4) insert—
“(5) The reference in subsection (1) above to a disabled person includes, in relation to any settled property, a reference to a person who, when the property was transferred into settlement,—
(a) would have been in receipt of attendance allowance under section 64 of either of the Acts mentioned in subsection (4)(b) above had provision made by regulations under section 67(1) or (2) of that Act (non-satisfaction of conditions for attendance allowance where person is undergoing treatment for renal failure in a hospital or is provided with certain accommodation) been ignored, or
(b) would have been in receipt of disability living allowance by virtue of entitlement to the care component at the highest or middle rate had provision made by regulations under section 72(8) of either of the Acts mentioned in subsection (4)(c) above (no payment of disability living allowance for persons for whom certain accommodation is provided) been ignored.
(6) The reference in subsection (1) above to a disabled person also includes, in relation to any settled property, a reference to a person who satisfies the Commissioners for Her Majesty’s Revenue and Customs—
(a) that he would, when the property was transferred into settlement, have been in receipt of attendance allowance under section 64 of either of the Acts mentioned in subsection (4)(b) above—
(i) had he met the conditions as to residence under section 64(1) of that Act, and
(ii) had provision made by regulations under section 67(1) or (2) of that Act been ignored, or
(b) that he would, when the property was transferred into settlement, have been in receipt of a disability living allowance by virtue of entitlement to the care component at the highest or middle rate—
(i) had he met the prescribed conditions as to residence under section 71(6) of either of the Acts mentioned in subsection (4)(c) above, and
(ii) had provision made by regulations under section 72(8) of that Act been ignored.”
(3) Sub-paragraph (1) shall be deemed to have come into force on 22nd March 2006.
(4) Sub-paragraph (2) shall be deemed to have come into force on 22nd March 2006, but only in respect of property transferred into settlement on or after that day.
7 The following paragraphs of this Part of this Schedule shall be deemed to have come into force on 22nd March 2006.
8 In section 3(3) of IHTA 1984 (failure to exercise a right treated as disposition if the omission increases the value of another person’s estate or the value of settled property in which no interest in possession subsists), for the words from the beginning to “increased” substitute—
“Where the value of a person’s estate is diminished, and the value—
(a) of another person’s estate, or
(b) of any settled property, other than settled property treated by section 49(1) below as property to which a person is beneficially entitled,
is increased”.
9 (1) Section 3A of IHTA 1984 (potentially exempt transfers) is amended as follows.
(2) In subsection (1)(a) (transfer must be one made on or after 18th March 1986), after “1986” insert “but before 22nd March 2006”.
(3) After subsection (1) insert—
“(1A) Any reference in this Act to a potentially exempt transfer is also a reference to a transfer of value—
(a) which is made by an individual on or after 22nd March 2006,
(b) which, apart from this section, would be a chargeable transfer (or to the extent to which, apart from this section, it would be such a transfer), and
(c) to the extent that it constitutes—
(i) a gift to another individual,
(ii) a gift into a disabled trust, or
(iii) a gift into a bereaved minor’s trust on the coming to an end of an immediate post-death interest.
(1B) Subsections (1) and (1A) above have effect subject to any provision of this Act which provides that a disposition (or transfer of value) of a particular description is not a potentially exempt transfer.”
(4) In subsection (2) (extent to which transfer is a gift to another individual), after “subsection (1)(c)” insert “or (1A)(c)(i)”.
(5) After subsection (3) insert—
“(3A) Subject to subsection (6) below, a transfer of value falls within subsection (1A)(c)(ii) above to the extent that the value transferred is attributable to property which, by virtue of the transfer, becomes settled property to which section 89 below applies.
(3B) A transfer of value falls within subsection (1A)(c)(iii) above to the extent that the value transferred is attributable to settled property (whenever settled) that becomes property to which section 71A below applies in the following circumstances—
(a) under the settlement, a person (“L”) is beneficially entitled to an interest in possession in the settled property,
(b) the interest in possession is an immediate post-death interest,
(c) on or after 22nd March 2006, but during L’s life, the interest in possession comes to an end,
(d) L is beneficially entitled to the interest in possession immediately before it comes to an end, and
(e) on the interest in possession coming to an end, the property—
(i) continues to be held on the trusts of the settlement, and
(ii) becomes property to which section 71A below applies.”
(6) In subsection (7) (application of section in relation to charge to tax under section 52), after “subsection (1)(a)” insert “or (1A)(a)”.
10 (1) Section 5 of IHTA 1984 (meaning of “estate”) is amended as follows.
(2) In subsection (1) (person’s estate is aggregate of all property to which person beneficially entitled, except that person’s estate immediately before death does not include excluded property), for “except that the” substitute “except that—
(a) the estate of a person—
(i) does not include an interest in possession in settled property to which section 71A or 71D below applies, and
(ii) does not include an interest in possession that falls within subsection (1A) below, and
(b) the”.
(3) After subsection (1) insert—
“(1A) An interest in possession falls within this subsection if—
(a) it is an interest in possession in settled property,
(b) the settled property is not property to which section 71A or 71D below applies,
(c) the person is beneficially entitled to the interest in possession,
(d) the person became beneficially entitled to the interest in possession on or after 22nd March 2006, and
(e) the interest in possession is—
(i) not an immediate post-death interest,
(ii) not a disabled person’s interest, and
(iii) not a transitional serial interest.”
11 (1) After section 46 of IHTA 1984 insert—
(1) Subsections (2) and (4) below apply where—
(a) a settlement commenced before 22nd March 2006,
(b) a contract of life insurance was entered into before that day,
(c) a premium payable under the contract is paid, or an allowed variation is made to the contract, at a particular time on or after that day,
(d) immediately before that day, and at all subsequent times up to the particular time, there were rights under the contract that—
(i) were comprised in the settlement, and
(ii) were settled property in which a transitionally-protected interest (whether or not the same such interest throughout that period) subsisted,
(e) rights under the contract become, by reference to payment of the premium or as a result of the variation,—
(i) comprised in the settlement, and
(ii) part of the settled property in which the then-current transitionally-protected interest subsists, and
(f) any variation of the contract on or after 22nd March 2006 but before the particular time, so far as it is a variation that—
(i) increased the benefits secured by the contract, or
(ii) extended the term of the insurance provided by the contract,
was an allowed variation.
(2) For the purposes of the provisions mentioned in subsection (3) below—
(a) the rights mentioned in subsection (1)(e) above shall be taken to have become comprised in the settlement, and
(b) the person beneficially entitled to the then-current transitionally-protected interest shall be taken to have become beneficially entitled to his interest in possession so far as it subsists in those rights,
before 22nd March 2006.
(3) Those provisions are—
section 3A(2) above;
section 5(1A) above;
section 49(1A) and (1B) below;
section 51(1A) and (1B) below;
section 52(2A) and (3A) below;
section 53(1A) and (2A) below;
section 54(2A) and (2B) below;
section 54A(1A) below;
section 57A(1A) below;
section 58(1B) and (1C) below;
section 59(1) and (2) below;
section 80(4) below;
section 100(1A) below;
section 101(1A) below;
section 102ZA(1) of the Finance Act 1986 (gifts with reservation); and
sections 72(1A) and (2A) and 73(2A) of the 1992 Act.
(4) If payment of the premium is a transfer of value made by an individual, that transfer of value is a potentially exempt transfer.
(5) In this section—
“allowed variation”, in relation to a contract, means a variation that takes place by operation of, or as a result of exercise of rights conferred by, provisions forming part of the contract immediately before 22nd March 2006;
“transitionally-protected interest” means—
an interest in possession to which a person was beneficially entitled immediately before, and on, 22nd March 2006, or
a transitional serial interest.
(1) Subsections (2) and (5) below apply where—
(a) a settlement commenced before 22nd March 2006,
(b) a contract of life insurance was entered into before that day,
(c) a premium payable under the contract is paid, or an allowed variation is made to the contract, at a particular time on or after that day,
(d) immediately before that day, and at all subsequent times up to the particular time, there were rights under the contract that—
(i) were comprised in the settlement, and
(ii) were settled property to which section 71 below applied,
(e) rights under the contract become, by reference to payment of the premium or as a result of the variation, comprised in the settlement, and
(f) any variation of the contract on or after 22nd March 2006 but before the particular time, so far as it was a variation that—
(i) increased the benefits secured by the contract, or
(ii) extended the term of the insurance provided by the contract,
was an allowed variation.
(2) If the rights mentioned in subsection (1)(e) above would, but for subsection (1A) of section 71 below, become property to which that section applies, those rights shall become settled property to which that section applies when they become comprised in the settlement.
(3) Subsection (5) below also applies where—
(a) a settlement commenced before 22nd March 2006,
(b) a contract of life insurance was entered into before that day,
(c) a premium payable under the contract is paid, or an allowed variation is made to the contract, at a particular time on or after that day when there are rights under the contract—
(i) that are comprised in the settlement and are settled property to which section 71A or 71D below applies,
(ii) that immediately before that day were settled property to which section 71 below applied, and
(iii) that on or after that day, but before the particular time, became property to which section 71A or 71D below applies in circumstances falling within subsection (4) below,
(d) rights under the contract become, by reference to payment of the premium or as a result of the variation, comprised in the settlement, and
(e) any variation of the contract on or after 22nd March 2006 but before the particular time, so far as it was a variation that—
(i) increased the benefits secured by the contract, or
(ii) extended the term of the insurance provided by the contract,
was an allowed variation.
(4) The circumstances referred to in subsection (3)(c)(iii) above are—
(a) in the case of property to which section 71D below applies, that the property on becoming property to which section 71D below applies ceased to be property to which section 71 below applied without ceasing to be settled property;
(b) in the case of property to which section 71A below applies—
(i) that the property on becoming property to which section 71A below applies ceased, by the operation of section 71(1B) below, to be property to which section 71 below applied, or
(ii) that the property, having become property to which section 71D below applied in circumstances falling within paragraph (a) above, on becoming property to which 71A below applies ceased, by the operation of section 71D(5)(a) below, to be property to which section 71D below applied.
(5) If payment of the premium is a transfer of value made by an individual, that transfer of value is a potentially exempt transfer.
(6) In this section “allowed variation”, in relation to a contract, means a variation that takes place by operation of, or as a result of exercise of rights conferred by, provisions forming part of the contract immediately before 22nd March 2006.”
(2) Sub-paragraph (1) shall be deemed to have come into force on 22nd March 2006.
12 In section 51 of IHTA 1984 (disposal of interest in possession not a transfer of value, but treated as coming to end of interest), after subsection (1) insert—
“(1A) Where the interest disposed of is one to which the person became beneficially entitled on or after 22nd March 2006, subsection (1) above applies in relation to the disposal only if the interest is—
(a) an immediate post-death interest,
(b) a disabled person’s interest within section 89B(1)(c) or (d) below, or
(c) a transitional serial interest.
(1B) Where the interest disposed of is one to which the person became beneficially entitled before 22nd March 2006, subsection (1) above does not apply in relation to the disposal if, immediately before the disposal, section 71A or 71D below applies to the property in which the interest subsists.”
13 (1) Section 52 of IHTA 1984 (tax on termination of interest in possession) is amended as follows.
(2) After subsection (2) insert—
“(2A) Where the interest mentioned in subsection (1) or (2) above is one to which the person became beneficially entitled on or after 22nd March 2006, that subsection applies in relation to the coming to an end of the interest only if the interest is—
(a) an immediate post-death interest,
(b) a disabled person’s interest, or
(c) a transitional serial interest.”
(3) After subsection (3) insert—
“(3A) Where the interest mentioned in paragraph (a) of subsection (3) above is one to which the person mentioned in that paragraph became beneficially entitled on or after 22nd March 2006, that subsection applies in relation to the transaction only if the interest is—
(a) an immediate post-death interest,
(b) a disabled person’s interest, or
(c) a transitional serial interest.”
14 (1) Section 53 of IHTA 1984 (exceptions from tax charge under section 52) is amended as follows.
(2) After subsection (1) insert—
“(1A) Tax shall not be chargeable under section 52 above if—
(a) the person whose interest comes to an end became beneficially entitled to the interest before 22nd March 2006,
(b) the interest comes to an end on or after that day, and
(c) immediately before the interest comes to an end, section 71A or 71D below applies to the property in which the interest subsists.”
(3) After subsection (2) insert—
“(2A) Where—
(a) a person becomes beneficially entitled on or after 22nd March 2006 to an interest in possession in settled property, and
(b) the interest is not a disabled person’s interest,
subsection (2) above applies in relation to the coming to an end of the interest with the omission of the words “or to another interest in possession in the property”.”
Finance Act 2006