Inheritance Tax Act 1984 section 78

Conditionally exempt occasions

Section 78 deals with the circumstances under which a transfer of settled property can be treated as a conditionally exempt occasion, shielding it from an immediate inheritance tax charge, and sets out what happens when that conditional exemption is later lost.

• A transfer or event involving settled property that has been in the settlement for at least six years can be exempt from inheritance tax (other than the ten-year anniversary charge) if the Treasury designates the property under section 31 and an appropriate undertaking is given to maintain, preserve and allow public access to it.
• A claim for this conditional exemption must be made within two years of the transfer or event, unless HMRC allows a longer period.
• If the conditional exemption is later broken — for example, because the undertaking is breached or the property is sold — inheritance tax becomes chargeable, calculated by reference to the settlor's cumulative transfer history, with reduced rates of 30% or 60% applying if the chargeable event falls before the first or second ten-year anniversary respectively.
• Where the last conditionally exempt transfer of the property was followed by a conditionally exempt occasion, the rule in section 34 that reinstates the transferor's cumulative total does not apply.