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EXPLANATORY NOTE

(This note is not part of the Order)

These Regulations replace the Inheritance Tax (Delivery of Accounts) (Excepted Settlements) Regulations 2002 (S.I. 2002/1732) (“the 2002 Regulations”) in relation to chargeable events occurring on or after 6th April 2007. The 2002 Regulations and these Regulations make provision in relation to the delivery of accounts and other information for inheritance tax purposes. These Regulations make some new and different provisions, these are noted below.

Regulation 1 provides for citation, commencement and effect.

Regulation 2 interprets some of the terms used in the Regulations

Regulation 3 provides that a person is not required to deliver an account for inheritance tax purposes under section 216 of the Inheritance Tax Act 1984 (c. 51) (“the 1984 Act”) of property comprised in a class of trusts where a chargeable event occurs on or after 6th April 2007. These trusts are defined as excepted settlements.

Regulation 4 defines an excepted settlement. There are five categories of excepted settlement, all requiring there to be no qualifying interest in possession subsisting in the settled property, these are as follows. The first category is a settlement where the settled property can comprise only cash, the trustees must be resident in the United Kingdom, the settlor must not have provided any additions to the settled property following the commencement of the settlement or have created any other settlements on the same day and the value of the settled property at the time of the chargeable event must not exceed £1,000.

In relation to the other categories there are general requirements applying to all categories and a specific requirement (“the condition”). The general requirements are that the settlor is domiciled at the commencement of the settlement and thereafter until the chargeable event (or his death, if earlier), the trustees must be resident in the United Kingdom throughout the existence of the settlement and there must be no related settlements. The specific requirement is that the value transferred by the relevant notional chargeable transfer under the 1984 Act does not exceed 80% of the inheritance tax threshold for the year in which the chargeable event occurs, ignoring for the purpose of determining the value any liabilities, exemptions or reliefs that would otherwise be deductible under the 1984 Act. These other categories are as follows.

The second category is a settlement where there is a chargeable event on or after 6th April 2007 under section 64 (charge at ten-year anniversary). The condition limits the value transferred by the notional chargeable transfer described in section 66(3).

The third category is a settlement where there is a chargeable event on or after 6th April 2007 under section 65 (charge at other times) preceding the first ten-year anniversary of the settlement. The condition limits the value transferred by the notional chargeable transfer described in section 68(4).

The fourth category is a settlement where there is a chargeable event on or after 6th April 2007 under section 65 following one or more ten-year anniversary of the settlement. The condition limits the value transferred by the notional chargeable transfer described in section 66(3), taking into account section 69.

The fifth category is a settlement where there is a chargeable event on or after 6th April 2007 under section 71E (charge to tax on property in an Age 18-to-25 trust) by reason of an event within section 71F(2). The condition limits the value transferred by the notional chargeable transfer described in section 71F(8).

Regulations 5 and 6 provide for the discharge of trustees and property from tax in relation to property comprised in an excepted settlement in the first category.

Regulation 7 makes provision for excepted settlements in relation to transfers reported late under section 264 of the 1984 Act.

Regulation 8 revokes the Inheritance Tax (Delivery of Accounts) (Excepted Settlements) Regulations 2002 (S.I. 2002/1732) in relation to chargeable events occurring on or after 6th April 2007.

These Regulations do not impose new costs on business or charities.