Commentary

I5.221 Lifetime termination of QIIP—general

IHT, trusts and estates

I5.221 Lifetime termination of QIIP—general

Chargeable events during lifetime of a QIIP trust

I5.221 Lifetime termination of QIIP—general

Lifetime charges on settled property that is subject to qualifying interest in possession (QIIP) are imposed by a set of rules which are separate from but parallel to those relating to dispositions of free estate. These rules provide that a disposition of all or part (I5.223) of a QIIP is not a transfer of value by the trustees but is treated as the coming to an end of the interest in possession. This termination is treated as being a transfer of value by the person beneficially entitled to the interest (often called the 'life tenant'), the value transferred being the value of the property in which his interest subsisted1.

A lifetime termination of the beneficiary's interest will sometimes be treated as a chargeable lifetime transfer (CLT) by the former life tenant (where, say, the trust fund continues on further trusts).

A transfer will however be a potentially exempt transfer (PET) where:

  1.  

    •     the life tenant gives it up in favour of another individual (or a disabled trust; see I5.207), or the life tenant changes under the rules for a transitional serial interest (see I5.206), or

  2.  

    •     someone with an immediate post-death interest (see I5.205) gives it up in favour of a bereaved minor's trust (see I5.546–I5.550)

The most common occasions when lifetime charges arise are on:

  1.  

    •     a disposal of the interest under IHTA 1984, s 51 (I5.225)

  2.  

    •     a diminution in the value of settled property

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