Establishing the value of the annuity slice
Where a person is entitled to a specified part of the income (eg an annuity) of settled property, his interest in the underlying property is deemed to be an amount that produces the specified income1 — the 'annuity slice'. Note that property can be settled property for IHT purposes by virtue of being charged or burdened (other than for full consideration) with payment of an annuity and need not necessarily be held on trust to come within this category — see I5.111 and I5.115.
Under a settlement worth £100,000, A receives an annuity of £1,000 a year and B receives the balance of the income.
The income is £8,000 so B receives £7,000.
A's share is taken as 1/8 × £100,000 = £12,500.
B's share is taken as 7/8 × £100,000 = £87,500.
The main difficulty in applying the above rule is to know what period should be used for this calculation. The simplest practical solution is to take the year preceding the event giving rise to the charge, at any rate where the annuity is expressed as an annual amount, as is usually the case.
If there is a discretionary element in the