The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:
Under the inheritance tax rules, a settlor makes a disposition of his property where he transfers ownership of it to another person. In addition, a disposition is also made where it is effected by associated operations.
So where associated operations result in a transfer of the beneficial ownership of property by the settlor and a fall in the value of his estate, he is treated as having made a disposition resulting in a transfer. That transfer is either a chargeable lifetime transfer (CLT) subject to the lifetime charge to IHT or a potentially exempt transfer (PET).
The rules on associated operations exist in order to prevent the avoidance of IHT by the means of splitting a single transfer into a series of transactions in order to reduce the amount of IHT due. The rules will only apply in cases which would not be regarded as a disposition of property in its ordinary sense.
For example in Rysaffe Trustee Co, a settlor made five discretionary trusts and transferred shares to each trust. HMRC argued that the creation of all the trusts constituted associated operations. Thus the settlor had to be regarded as having transferred all the shares at once for the purposes of calculating the 10-year charges on each trust (thereby resulting in more tax being payable).
The Court of Appeal rejected this assertion on the grounds that a disposition in the ordinary sense of the word had occurred when the shares were settled. The shares in each settlement were therefore already within the 10-year charge to IHT, and it was not necessary to invoke the associated operations rules in order to bring them within that charge.
Associated operations are two or more ‘operations’ of any kind
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