Finance Act 2003

Inheritance tax U.K.

185 Gifts with reservation U.K.

(1) Section 102 of the Finance Act 1986 (c. 41) (gifts with reservation) is amended as follows.

(2) In subsection (5) (section not to apply where disposal is an exempt transfer by virtue of any of the provisions of the Inheritance Tax Act 1984 specified in the paragraphs of that subsection) at the end of paragraph (a) (section 18: transfers between spouses) insert “ , except as provided by subsections (5A) and (5B) below ”.

(3) After subsection (5) insert—

“(5A) Subsection (5)(a) above does not prevent this section from applying if or, as the case may be, to the extent that—

(a) the property becomes settled property by virtue of the gift,

(b) by reason of the donor’s spouse (“the relevant beneficiary”) becoming beneficially entitled to an interest in possession in the settled property, the disposal is or, as the case may be, is to any extent an exempt transfer by virtue of section 18 of the 1984 Act in consequence of the operation of section 49 of that Act (treatment of interests in possession),

(c) at some time after the disposal, but before the death of the donor, the relevant beneficiary’s interest in possession comes to an end, and

(d) on the occasion on which that interest comes to an end, the relevant beneficiary does not become beneficially entitled to the settled property or to another interest in possession in the settled property.

(5B) If or, as the case may be, to the extent that this section applies by virtue of subsection (5A) above, it has effect as if the disposal by way of gift had been made immediately after the relevant beneficiary’s interest in possession came to an end.

(5C) For the purposes of subsections (5A) and (5B) above—

(a) section 51(1)(b) of the 1984 Act (disposal of interest in possession treated as coming to end of interest) applies as it applies for the purposes of Chapter 2 of Part 3 of that Act; and

(b) references to any property or to an interest in any property include references to part of any property or interest.”.

(4) The amendments made by this section have effect in relation to disposals made on or after 20th June 2003.

186 Authorised unit trusts, OEICs and common investment funds U.K.

(1) The Inheritance Tax Act 1984 (c. 51) is amended as follows.

(2) In section 6 (excluded property), after subsection (1) insert—

“(1A) A holding in an authorised unit trust and a share in an open-ended investment company is excluded property if the person beneficially entitled to it is an individual domiciled outside the United Kingdom.”.

(3) In section 48 (settlements: excluded property), after subsection (3) insert—

“(3A) Where property comprised in a settlement is a holding in an authorised unit trust or a share in an open-ended investment company—

(a) the property (but not a reversionary interest in the property) is excluded property unless the settlor was domiciled in the United Kingdom at the time the settlement was made, and

(b) section 6(1A) above applies to a reversionary interest in the property but does not otherwise apply in relation to the property.”.

(4) In section 178(1) (sale of shares etc from deceased’s estate: preliminary)—

(a) in the definition of “qualifying investments”, after “authorised unit trust” insert “ , shares in an open-ended investment company ”, and

(b) for “section 1 of the Administration of Justice Act 1965” substitute “ section 42 of the Administration of Justice Act 1982 ”.

(5) Section 272 (general interpretation) is amended as follows.

(6) After the definition of “amount” insert—

““authorised unit trust” means a scheme which is a unit trust scheme for the purposes of section 469 of the Taxes Act 1988 (see subsection (7) of that section) and in the case of which an order under section 243 of the Financial Services and Markets Act 2000 is in force;”.

(7) After the definition of “mortgage” insert—

““open-ended investment company” means an open-ended investment company within the meaning given by section 236 of the Financial Services and Markets Act 2000 which is incorporated in the United Kingdom;”.

(8) This section has effect in relation to transfers of value or other events occurring on or after 16th October 2002.