IHTM42229 - The settlement: property moving from one settlement to another

When property is transferred from one settlement to another, usually as a result of the trustees exercising听a power of appointment鈥痮r an assignment by a beneficiary,鈥�that property鈥痠s treated as remaining in the first settlement鈥痓ut only鈥痜or the purposes of the鈥痗harges鈥痵et out for鈥痳elevant鈥痯roperty trusts in Chapter III, Part III,鈥疘HTA84/S81鈥�听

This means that鈥痶en-year anniversary (TYA)鈥痗harges鈥�(IHTM42081)鈥痑rise on the transferred property on the鈥疶YA鈥痮f the commencement of the鈥痜irst鈥痵ettlement.鈥疶his rule therefore prevents transfers to another settlement from avoiding鈥痶he鈥疶YA charge听by keeping the settlement intact.鈥�听

The rule does not听apply for the other purposes of the鈥�Inheritance Tax Act so that, e.g. the accountability and liability rules for the transferred property will be the responsibility of the recipient trustees.鈥��听

Similarly, S81 does not鈥痬ean that the trusts applying to the transferred property remain the same. It will be held on the terms of the recipient trust.鈥�听

The transfer of property鈥�between settlements听will鈥痳arely鈥痝ive rise to an exit charge.鈥疶hat is because either the property remains听relevant property or there is a statutory exemption that applies, e.g. a transfer to a special trust such as a charitable trust or an employee benefit trust (see IHTA/S75, S75A & S76). However, if the recipient trust is, e.g. a disabled person鈥檚 trust then the property will then have become non-relevant property and a charge may arise.鈥�听

Impact on excluded property鈥�听

For times on or after 6 April 2025, excluded property for foreign assets can only be available if the settlor of the first trust is not a long-term UK resident.鈥��听

Prior to then excluded property depended not only on the domicile of the settlor of the first trust but also鈥��听

  • the domicile of the settlor of the recipient trust or鈥��听

  • the domicile of a person who made an assignment of the trust property (or had exercised a general power of appointment).鈥�听

These additional听tests depended upon whether the inter-trust transfer was鈥��听

  • prior to 22 July 2020 or鈥��听

  • between 22 July 2020 and before 6 April 2025.鈥��听

These tests are now repealed and guidance on these historic tests is at鈥�IHTM42603.