I1.526 Settled property subject to a beneficiary-taxed interest in possession
A person beneficially entitled to a beneficiary-taxed interest in possession in settled property is treated as beneficially entitled to that property1 (see I5.201). One of the main consequences of this is that such settled property is treated as part of that person's estate chargeable to IHT in the event of his death2 (see I5.241). It also has the consequence of making available various exemptions and reliefs, including the general exemptions such as spouse or civil partner, or charitable exemption (see I4.231, I4.215), potential exemption (see I3.312), and business and agricultural relief (see I5.271–I5.273A). It also means that if a settlement is made under which the settlor has an initial interest in possession it is not a transfer of value because the settled property remains in his estate.
Potential exemption was, before 22 March 2006, available where absolute property was settled on interest in possession trusts for an individual, or on accumulation and maintenance trusts or trusts for a mentally disabled person. It was also available where an interest in possession in settled property came to an end during the life of the individual entitled to it, to be followed by someone other than the individual who was entitled to the interest in possession
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