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The fact that there will be no IHT actually payable if the value of the property settled plus any related property plus the cumulative total of transfers made in the preceding seven years does not exceed the nil-rate band is irrelevant. There are no restrictions on the type of asset gifted into the discretionary trust. What is important is that it is a chargeable transfer within IHTA 1984 (or would be but for annual exemptions under section 19 IHTA 1984) and is not a potentially-exempt transfer within the meaning of IHTA 1984. It is reiterated that there is no requirement that an actual IHT liability should arise. For example, a gift to a discretionary trust, the value of which falls within the transferor’s nil-rate band, will qualify as it will be a chargeable transfer, notwithstanding that no actual tax charge can arise. In practice, this means that holdover relief will be available on a transfer to a discretionary trust or a transfer by the trustees out of a discretionary trust. A transfer into an accumulation and maintenance trust is not a qualifying disposal. However, gifts to political parties or maintenance funds for historic buildings will also qualify as a type of transfer to which holdover relief may apply. If the relief is claimed, the heldover gain is the chargeable gain otherwise accruing. Rel- ief is given by deducting this amount from the gain otherwise accruing to the transferor and from the consideration otherwise regarded as being given by the transferee. The result of holdover relief being claimed is to effectively transfer the gain to the donee. The net effect is to defer payment of capital gains tax until a subsequent disposal by the donee, unless such a disposal would qualify for further holdover relief and such relief is claimed. There are no limits on the amount of gain that can be held over under the provisions. Where relief is claimed on a transfer to a discretionary trust under section 260 TCGA 1992, the value of the gift is likely to be restricted to the unused portion of the nil-rate band for IHT purposes. If the nil-rate bond is exceeded, an IHT liability at 20 per cent on the excess will arise and, in normal circumstances, taxpayers will wish to avoid this. When a disposal is made to an individual, a joint claim for relief must be made by the transferor and transferee. When the gift is to a trust, the claim is made by the settlor alone. For the purpose of taper relief, where a claim for holdover relief is made, the heldover gain is the untapered gain. On subsequent disposal by the transferee, only the period for which he has personally held the asset will determine the taper relief available. The most use of holdover relief will generally be made in respect of family businesses where assets are passed to the next generation without any plans for subsequent disposal to third parties. Even where business assets qualify for 100 per cent IHT relief, so there is no tax incentive to gift assets, a gift of shares in a family company or taking a younger person into partnership may be appropriate where, in practice, the younger generation is involved in the business. The availability of holdover relief allows transfers of shares in the business or the transfer of business assets to take place without untoward tax implications. When gifts to trusts are contemplated as part of IHT planning, there are two issues which must be borne in mind: l Particularly where the taxpayer is of advanced age, it must be remembered that a gain which is held over simply means a gain that is deferred and which will crystallise on subsequent disposal. If the asset is retained by the taxpayer until death, all the inherent gains will be wiped out on death. l Where a gift is made to an interest in possession trust and the gain is held over, the defer- red capital gain will crystallise on the death of the life tenant (section 74 TCGA 1992). This is the only occasion when death may result in a CGT liability. The Government believes that the ability to use holdover relief on gifts, including those to discretionary trusts, has been abused in two ways and introduced legislation that came into effect on December 10, 2003 to combat the use of such schemes. The changes were as follows: l Provisions to prevent people using trusts to exploit the interaction between private residence relief and holdover relief with a view to avoiding CGT. The main purpose is to counter tax avoidance schemes designed to ensure that gains arising on the disposal of properties that are not the settlor’s main residence are able to benefit from private residence relief. l Provisions to prevent holdover relief under section 165 (gifts of business assets) or section 260 (gifts to discretionary trusts) of TCGA 1992 being available in respect of transfers of assets, including residential property, to the trustees of settlor-interested settlements if certain conditions are satisfied. I will look at these in more detail next week.