Brother and sister enjoy pre-22 March 2006 IIPs in a single trust. (It started life as a “Melville” settlement but I don’t think that’s now relevant.) On my analysis, if one surrenders his or her interest, whether or not for consideration, the “estate” IIP will continue in half and the surrendered half will enter the relevant property regime. Am I correct please? (I have read the thread from August 2025 ‘Interest in possession trust-two beneficiaries with right of occupation’)
I have certainly seen this argument advanced. I do not agree with it but I have to accept that s.50 IHTA does not solve the conundrum. And it should do so because the statutory lacuna is glaringly obvious.
The question is whether under s49(1A) the survivor of a jointly owned IIP becomes entitled to an “interest” under s.49(1) on or after 22 March 2006.
It must be noted that the acquisition of an IIP is not a chargeable event. It is of course an important issue for the transferor: the transferee of a lifetime gift will by acquiring a QIIP cause the transferor to make a PET, if the transfer is to a disabled trust under s.89 or a s.89A self-settlement or took place before 22 March 2006. If the transfer was made on death under s.4 the IIP the transferee will only acquire a QIIP if the death occurred before that date or, if after, only if it comes within s.49(1A.
At this juncture it is necessary to determine the value of property in which the QIIP (or each of more than one) only if it affects the charge on the transferor. This will rarely matter now but could apply if a surviving spouse were one of two or more joint QIIP IPDI transferees, necessitating the determination of the extent of the s.18 exemption. (ss.89 and 89A transfers must create NQIIPs which are then deemed to be QIIPs so cannot be acquired as QIIPs in the first instance).
The crunch comes when a chargeable event occurs within s52 directly or via s.51. It is necessary to determine the property in which the terminating QIIP subsists. And the key to that is whether or not its owner was then entitled to all the income from it—or only to part when s.50(1) will apply. In the simple case of 2 joint owners (so ignoring s.50(5) and(6)) when the QIIP of one terminates the chargeable value is that of 50% of the value of the whole (without discount unless the whole is itself a part interest), subject to ss53 and 54 if applicable.
When the survivor’s interest later terminates they will then be entitled to all the income from the property so their interest will subsist in the whole of it. S.5O is simply not engaged because its essential premiss is not fulfilled. In my opinion there is therefore no statutory mandate for artificially subdividing the QIIP of the survivor into two IIPs acquired at two different dates by two different means.
At the date of the second termination event the IIP owner has a single interest acquired as and when it was originally acquired and all that changed on and after the first chargeable event was the quantum of income attributable to it. An increase in that is not a chargeable event. The fiction ordained by s.49(1) is not applicable cumulatively as where for CGT several acquisitions of parts of an asset at different times may need to be identified on a later disposal (absent merger at law or mandatory pooling).
It may be that during its ownership an IIP may entitle its owner to differing proportions of the income from a trust fund but none of that matters unless and until there is a chargeable termination event: only then is the determination of any proportionate entitlement in issue. If at that date the entitlement is to all the income and the IIP was originally acquired as a QIIP then the charge is on the value of 100% of the property in which it subsists under s.52. The fact that there has been an earlier s.52 chargeable event in relation to the same trust is irrelevant.
This mirrors the treatment of a transfer of unsettled property to two individuals for an equitable joint tenancy. There is a single once-off gift by the transferor, who does not make a second gift if and when the right of survivorship later vests the whole in the survivor. That occasion may well be itself be a TOV by the other joint tenant just as there may be an earlier s.52 charge in a trust.
Here of course there is no differentiation of acquisition date relevant when the survivor makes a later TOV whether it the other joint tenant will have made an actual lifetime transfer of his share or a deemed transfer under s.4. The position under s.52 is that the QIIP owner of part is deemed to make a TOV of part of the settled property under s49(1) and s.50(1) but he is NOT deemed to make it TO the other QIIP owner. In my view the s49(1) fiction cannot be stretched to deem him to acquire something: it only applies to deem him to own something at the time of a chargeable event as and when that occurs. The survivor of two joint QIIP owners acquired no interest on the termination of that owned by the other. Nothing in IHTA directs that. If Parliament (for it is they) had wished to enact that in FA 2006 it could have been enacted: it wasn’t.
IHTM is silent. This is a dereliction of duty on the part of HMRC. It is hard to believe that the issue has never arisen in practice and so that they have no settled position on the point of principle. Trustees need to know whether on the first termination event part of the trust fund is held on a RPT. It may need to be decided upon by a judge but it has not apparently needed a judge to opine for HMRC to confidently assert that a usufruct is a settlement for IHT, also contentious.
Jack Harper
It does not address my particular argument above but the Court of Appeal’s decision in Elborne illustrates that the deeming provision in s.49(1) IHTA has its limitations: [2026] EWCA Civ 894. The Court refused to allow the statutory fiction, as HMRC argued, to deem the LT personally liable for the debts owed by the trustees.