We advise the trustees of a an pre 2006 IIP trust where the trust assets comprise heritage property (chattels) which currently qualify for Conditional Exemption.
On the death of the life tenant, the chattels pass to a remainderman outright.
If the remainderman does not comply with the undertaking, there will of course be a recapture charge at this point, although with a credit for any IHT payable by the trustees on the occasion of the life tenant’s death.
My question is who is responsible for paying tax on the recapture charge: is it the trustees or the remainderman?
S207 IHTA 1984 provides that where a recapture charge occurs on death ‘the person liable for the tax is the person who, if the property were sold […] immediately after the death, would be entitled to receive (whether for his benefit or not) the proceeds of sale or any income arising from them.’
In practice, the trustees would be expected to receive the proceeds of sale immediately after death which they would hold on bare trust for the remainderman. However, the wording does not seem particularly clear as to who has the primary liability, I am grateful for any comments on this.