A reversionary interest (
IHTM16000) which has been acquired
(whether by its current owner or by any previous owner) for a
consideration in money or money's worth is not excluded property. (
IHTM04251) A tax charge may therefore
arise on the transfer, whether in lifetime or on death, of a
purchased reversion. Unless it is clear from the information
already available to you that no purchase is involved, ask whether
the reversion had at any time been purchased. As the consideration
does not have to be full or in cash, it is always best to use the
precise words of IHTA84/S48 (1)(a) in formulating your enquiries.
There are special rules aimed at the prevention of tax
avoidance through purchases of reversionary interests, IHTA84/S55.
They apply where a reversion under a settlement is purchased by a
person, such as the life tenant, entitled to any prior interest
under the settlement. The rules treat the reversion when purchased
as not forming part of the purchaser’s estate and prevent the
provisions of IHTA84/S10 (exclusion of arm’s length
transactions) (
IHTM04151)) from applying even if it
was an arm’s length deal.
As the reversion does not form part of the purchaser’s
estate, the money they paid for the reversion gives rise to a loss
to their estate. (
IHTM04054) In these circumstances the
purchaser is treated as having made a transfer of value (
IHTM04024) equal to the purchase price.
Such a transfer cannot be a PET (
IHTM04057) between 18 March 1986 and 17
March 1987. (
IHTM04063)
Example
Property is settled on C for life with remainder to B. C
purchases B’s reversion for its full market value of
£5,000. As C is the life tenant, the settled property is
already part of his IHT estate. So his purchase of the smaller
interest (i.e. the reversion) in that property does not add
anything to that estate and yet he has paid £5,000 for the
reversion. The payment is a transfer of value.
