INHERITANCE TAX

Inheritance Tax: Transitional Serial Interests

FA 2006, Sch 20 changed the IHT rules for interest in possession (IIP) trusts. But it included a transitional period (from 22 March 2006 to 5 April 2008) to enable trustees to reorganise trusts set up before 22 March 2006 without being subject to the new rules. As the effect of the transitional provisions is unclear where pre-22 March 2006 IIP trusts are replaced with a ‘transitional serial interest’ (as defined) for the same beneficiary, legislation will be introduced in Finance Bill 2008 to clarify the position. It will ensure that the new rules will not have effect where this kind of change is made in the transitional period but will also ensure that the new rules will have effect as intended where an IIP trust is replaced after the transitional period with a new IIP trust (for either the same or a different beneficiary).

In addition, the transitional period will be extended by 6 months to 5 October 2008.