I12.409 Exemptions from charge
None of the three charging provisions discussed above will apply to a person at a time when the relevant property is included in his estate for the purposes of IHTA 1984. This also applies to other relevant property which derives its value from the relevant property, so long as its value – so far as attributable to the relevant property – is not substantially less than the value of the relevant property1.
This exclusion offered the opportunity for an avoidance device, by which the asset concerned was settled by the donee on revertor to settlor interest in possession trusts for the donor. The asset was then back in the estate of the donor, and so excluded from the income tax charge under FA 2004, but would be exempt from IHT on the termination of the interest in possession because of the revertor to settlor exemptions in IHTA 1984 sections 53 and 54. The legislation was therefore rapidly amended to prevent this arrangement from being effective, the relevant provisions being at FA 2004, Sch 15, paras 11 (11) and (12). The amendment took effect from 5 December 2005 and applied to cases where the resettlement on revertor to settlor trusts had already been carried out, as well as new resettlements thereafter. Of course, the FA 2006 changes to the tax treatment of trusts, introduced a few months later on 22 March 2006, would have ended the scheme anyway. The fact that it was still felt necessary to introduce
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