Relevant property

By Tolley
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The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Relevant property
  • Significance of relevant property
  • How to recognise relevant property
  • Date of commencement of settlements

The term ‘relevant property’ defines a category of trust property which is subject to a special regime for inheritance tax.

 

Significance of relevant property

The term ‘relevant property’ defines a category of trust property which is subject to a special regime for inheritance tax. As described in the Taxation of trusts - introduction guidance note, the inheritance tax treatment of trust property falls into two broad categories:

  • beneficial entitlement
  • relevant property

In the ‘beneficial entitlement’ category, trust property is subject to inheritance tax as if it belonged outright to the beneficiary. It is deemed to be his and is treated as part of his estate. Typically, this treatment applies where the beneficiary has a qualifying interest in possession (QIIP), or where he has an absolute entitlement to the trust property. See the Qualifying interest in possession and Bare trusts - IHT guidance notes.

By contrast, relevant property has an independent tax life. Once it is effectively removed from the settlor’s estate, it is not taxed as part of any other individual’s estate. To compensate for this, a special regime applies. Relevant property may be subject to inheritance tax on the following occasions:

  • when it becomes relevant property. This is usually when a trust is created or augmented, but it could be when the status of assets within a trust changes - see the Chargeable lifetime transfers guidance note
  • at 10 year intervals within a trust - see the Principal (10 year) charge guidance note
  • when it leaves the trust - see the Exit charge guidance note

The methods of calculating the inheritance tax on each of these occasions are described in the guidance notes indicated.

How to recognise relevant property

Relevant property is defined

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