Significance of relevant property

The term ‘relevant property’ defines a category of trust property which is subject to a special regime for inheritance tax. As described in the Taxation of trusts ― introduction guidance note, the inheritance tax treatment of trust property falls into two broad categories:

1. •

   beneficial entitlement

2. •

   relevant property

In the ‘beneficial entitlement’ category, trust property is subject to inheritance tax as if it belonged outright to the beneficiary. It is deemed to be his and is treated as part of his estate. Typically, this treatment applies where the beneficiary has a qualifying interest in possession (QIIP), or where he has an absolute entitlement to the trust property. See the Qualifying interest in possession and Bare trusts ― IHT guidance notes.

By contrast, relevant property has an independent tax regime. Once it is effectively removed from the settlor’s estate, it is not taxed as part