Income Tax Act 2007 section 516

Transfer of property between settlements

Section 516 deals with what happens for income tax purposes when all the property in one heritage maintenance settlement is transferred into another settlement without triggering an inheritance tax charge — a so-called "tax-free transfer".

• When heritage maintenance property moves entirely from one settlement to another via a tax-free transfer, the income tax charge that would normally arise at the point of transfer is deferred until a chargeable event occurs under the receiving settlement.
• A "tax-free transfer" is one where either the inheritance tax exemption for transfers between heritage maintenance settlements applies (under Schedule 4 to IHTA 1984), or the property remains heritage maintenance property both immediately before and immediately after the transfer.
• The period over which taxable income is measured for the receiving settlement is extended back to cover the earlier settlement — starting either from the last occasion of charge under the earlier settlement or, if there was none, from when the earlier settlement first took effect.
• The effect is that accumulated income from any chain of earlier settlements, however many tax-free transfers have occurred, will eventually be taxed on the settlement where a chargeable event finally arises, to the extent it has not already been charged.

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