188ÌåÓý

For the purposes of the disposal conditions relating to land and chattels, the disposal of any property is an excluded transaction in relation to the chargeable person if the property was transferred to their spouse or civil partner, or former spouse or civil partner where the transfer has been ordered by a court, FA04/Sch15/Para10(1)(b). The transfer can be by any means, not necessarily by way of gift, but it must be direct to the spouse or civil partner. Unlike IHTA84/S18(2) which restricts Inheritance Tax spouse or civil partner exemption where the doneeÌý¾±²õÌýnot a long-term UK residentÌý(IHTM47000)Ìý(on or after 6 April 2025) or wasÌýdomiciled abroadÌý(IHTM11031)Ìý(before 6 April 2025), there is no restriction on this exclusion.Ìý

Alternatively, a disposal is also an excluded transaction providedÌý

The spouse or civil partner must take an interest in possession from the outset, butÌýnote that this does not have to be a qualifying interest in possession under IHTA84/S49(1A). The transaction will remain an excluded transaction provided the interest in possession remainsÌýin place until the death of the spouse or civil partner. If the interest in possession ends during their lifetime, the transaction ceases to be an excluded transaction, FA04/Sch15/Para 10(3), so the POA charge will arise in the normal way from that point onwards. However, if the spouse or civil partner (or former spouse or civil partner) has become absolutely entitled to the property, you can accept that the benefit of the exclusion is not lost.Ìý

ExampleÌý

In 2005, Paul settles his house on qualifying interest in possession trusts for himself for life, then to his wife Susan with remainders to their children. Both occupy the property. In 2009, the trustees terminateÌý±Ê²¹³Ü±ô’s life interest; so that Susan now has a non-qualifying interest in possession, but Paul continues to occupy the property.Ìý

Initially there would have been no POA charge as the transaction would have been exempt from the charge (IHTM44041). On the termination ofÌý±Ê²¹³Ü±ô’sÌýlife interest, Susan’s interest in possession isÌýnot an excluded transaction because there is no disposal by way of gift by virtue of which the property becomes settled property in which Susan has a life interest. SoÌýthe exclusion under FA04/Sch15/Para 10(1)(c) does not apply and as the exemption no longer applies either, a POA charge arises.Ìý

However, as Paul continues to occupy the property and the termination of his qualifying life interest is deemedÌýto be a gift by the life tenant, FA86/S102ZA (IHTM14391), the exclusion under FA04/Sch15/Para 11(3) applies and no POA charge arises.