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Most reversionary interests (IHTM16231) are excluded property. This could provide an opportunity to avoid Inheritance Tax (IHT) in the following circumstances.

Example

Anna wishes to make a gift of 拢100,000 to Bill. Anna settles the 拢100,000 on herself for a short term, after which it will revert to Bill. Bill immediately sells his future right to receive the assets to the charity for 拢99,000. Anna then buys the reversion back from the charity for 拢100,000 to allow the charity a small profit.

Without the following provision, the payment by Anna would be exempt.

But, under IHTA84/S56 (1) charity exemption does not apply to property

• given to a charity (IHTM11112) in return for a reversionary interest (IHTM16231) in settled property (IHTM16000), if
• by reason of IHTA84/S55 (1) that reversionary interest does not form part of the IHT estate of the person acquiring it - that is when the person acquiring it already has a prior interest in the same property

This provision is designed to prevent misuse of the charity exemption. In the example above, because of IHTA84/S55 (1) and IHTA84s/S56 (2), the reversion Anna purchases from the charity is not part of her estate and IHTA84/S10 (1) cannot apply to the transaction. Consequently the 拢100,000 Anna pays to the charity in consideration for the reversion is a transfer of value. But for IHTA84/S56 (1) that transfer of value would be exempt under IHTA84/S23 (1). The result would have been a gift of 拢99,000 from Anna to Bill without any charge to IHT. IHTA84/S56 (1) prevents this by making the 拢100,000 paid by Anna to the charity for the reversion into a chargeable transfer. It is not a potentially exempt transfer (PET) (IHTM14024) because the donee, the charity, is not an individual.