Inheritance Tax Act 1984 section 89A

Self-settlement by person expected to fall within the definition of "disabled person"

Section 89A provides inheritance tax relief where a person settles their own property into trust at a time when they have a condition reasonably expected to result in them becoming a "disabled person", subject to conditions about how the trust property is used during their lifetime.

• A person who transfers their own property into a settlement on or after 22 March 2006 can qualify for favourable IHT treatment if they can satisfy HMRC that, at the time of the transfer, they had a condition reasonably expected to lead to them becoming a "disabled person" as defined in Schedule 1A to the Finance Act 2005.
• Two conditions must be met: first, any benefit from the settled property or its income during the settlor's lifetime must be applied for the settlor's benefit; second, if the trust is brought to an end during the settlor's lifetime, the settlor must become absolutely entitled to the property, or a qualifying disabled person's interest must continue to exist in it.
• Trustees may apply small amounts (up to an annual limit of the lower of £3,000 or 3% of the maximum value of the settled property in the relevant year) otherwise than for the benefit of the disabled person without jeopardising the trust's qualifying status, and standard trustee advancement powers are also permitted.
• Where the section applies, the settlor is treated as having a beneficial interest in possession in the settled property, meaning the property is effectively treated as part of their estate for IHT purposes rather than being subject to the relevant property regime of periodic and exit charges.