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Taxman reponds to internet speculation
HMRC’s treatment of a usufruct for inheritance tax (IHT) purposes will not be changed, the department has confirmed.
The announcement follows online speculation that the Revenue was preparing to amend its approach to the right to the use of another’s property.
The latest issue of the taxman’s Trusts and Estates Newsletter states that the definition of a settlement in IHTA 1984, s 43(2) means a usufruct is likely to be treated as such.
The consequence prior to March 2006 was that a usufruct retained by the transferor did not give rise to a loss to the estate because the transferor remained beneficially entitled to the property under s 49(1). It continued to form part of the transferor’s estate on death.
If the usufruct was created in favour of another, the transaction would give rise to a potentially exempt transfer equal to the value of the property. If it was in favour of the spouse or civil partner, exemption under s 18 would be available.
The consequences differ post-March 2006 because of the changes made to the IHT treatment of settled property. The creation of a usufruct gives rise to an immediately chargeable transfer. The exemption is not available if the usufruct is in favour of the spouse or civil partner.
