Dispositions That Are Not Transfers of Value: s10–s15 IHTA 1984
Some transactions are outside the IHT regime entirely — not just exempt, but not transfers of value at all. No 7-year clock, no annual exemption needed. Arm's-length sales, family maintenance, and dividend waivers all qualify.
Dispositions Outside the IHT Regime
Arm's-length transactions (no gratuitous benefit)
A disposition is not a transfer of value if: (1) it was not intended to confer a gratuitous benefit; AND (2) either it was made at arm's length between unconnected parties, or it was such as might be expected to be made in a transaction at arm's length between persons not connected with each other.
Examples: Selling a house at full market value; a business sale on commercial terms; a loan at a commercial interest rate.
No transfer of value — no IHT, no PET, no 7-year clock. The transaction is simply outside the IHT regime.
Maintenance of family members
A disposition is not a transfer of value if it is a reasonable provision for: (a) the maintenance of the transferor's spouse or civil partner; (b) the maintenance, education, or training of a child under 18 or in full-time education; (c) the care or maintenance of a dependent relative who is incapacitated by old age or infirmity.
Examples: Paying a child's school fees; supporting a dependent parent in a care home; providing regular income to a spouse.
No transfer of value — entirely outside IHT. No limit on amount (must be reasonable for the family's circumstances). Not subject to the 7-year rule.
Waiver of remuneration
A waiver of remuneration is not a transfer of value if it is a waiver of remuneration for services rendered to the person making the waiver (i.e. a director waiving a salary). The waiver must be of amounts due to the person making it, not a gift of salary they have already received.
Examples: A director waiving their salary; an employee declining a bonus.
No transfer of value. Distinction: if the salary is received first and then gifted, the gift is a transfer of value.
Waiver of dividends
A dividend waiver — where a shareholder waives their right to a dividend before it is paid — is not a transfer of value, provided the waiver is in writing and made before the right to the dividend arises.
Examples: A shareholder waiving a dividend to allow a larger payment to other shareholders.
No transfer of value for IHT. Note: HMRC may still challenge dividend waivers as transactions at undervalue for income tax purposes (ITTOIA 2005 s620 settlement provisions) or as sham arrangements.
Frequently Asked Questions
What is the difference between a disposition that is not a transfer of value and an exempt transfer for IHT?
The distinction is fundamental. A 'transfer of value' is the primary IHT concept: it means a disposition by a person that reduces the value of their estate. Once a transaction is characterised as a transfer of value, the next question is whether it is exempt (annual exemption, small gifts, spouse exemption, etc.) or subject to IHT (either immediately as a chargeable transfer, or potentially as a PET for 7 years). By contrast, a disposition that falls within s10 IHTA 1984 — an arm's-length transaction with no gratuitous benefit — is not a transfer of value at all. It never enters the IHT analysis. There is no PET, no 7-year clock, no annual exemption to consider. The estate is not reduced for IHT purposes even though assets have changed hands. This matters because: (1) failing the s10 test means the transaction does appear in the IHT calculation; (2) passing it means it never does — regardless of how large the transaction was.
What does 'not intended to confer a gratuitous benefit' mean in practice?
The requirement in s10(1) IHTA 1984 that the disposition was 'not intended to confer a gratuitous benefit' is a test of the transferor's purpose. A gratuitous benefit is a benefit freely given without equivalent consideration — a gift. The transferor's intention is assessed objectively. Where a parent sells a house to a child at market value, there is no intention to confer a gratuitous benefit — the parent receives full value. Where a parent sells at below market value, there is a gratuitous element: the discount is an intended benefit. In connected-party transactions (e.g. between family members or between related companies), HMRC scrutinises whether the price truly reflects arm's length terms. The connected-party rules in IHTA 1984 define relationships; where parties are connected, HMRC may assume the price was not arm's length unless evidence shows otherwise.
If I sell my house to my child at market value, is there any IHT issue?
A sale at full market value to a child — where the price is genuinely equivalent to what would be paid between unconnected parties — falls within s10 IHTA 1984 and is not a transfer of value. There is no IHT consequence. However, several other issues may arise: (1) SDLT is payable by the child if the consideration exceeds £125,000 (or lower thresholds); (2) the parent's CGT may be triggered by the disposal (depending on whether the house is their main residence — PPR relief may apply); (3) if the parent continues to live in the house rent-free after the sale, HMRC may apply the gift with reservation rules (FA 1986 s102), bringing the house back into the parent's estate for IHT, and the pre-owned assets tax (PA 2004 s84) may also apply; (4) care home fee assessments may treat the transaction as a deliberate deprivation of assets.
Are family maintenance payments completely free of IHT under s11?
Yes — s11 IHTA 1984 excludes reasonable maintenance payments from the transfer of value concept entirely. Unlike many IHT exemptions, s11 has no annual limit and no 7-year clock. The only requirement is that the payment must be 'reasonable' in the context of the family's circumstances: the test is whether the amount is proportionate to the needs of the recipient and the means of the payer, not whether it conforms to any fixed ceiling. Payments covered include: regular maintenance of a spouse or civil partner; school fees or other educational costs for a child under 18 or in full-time education; care and maintenance of an incapacitated dependent relative. The key distinction from the normal expenditure out of income exemption (s21 IHTA 1984) is that s11 does not require the payments to be out of income — capital payments for maintenance can also qualify.
Can a dividend waiver cause IHT problems even if it falls within s15?
Section 15 IHTA 1984 removes a dividend waiver from the IHT transfer of value analysis, but other tax issues remain. HMRC frequently investigates dividend waivers in owner-managed companies, particularly where: (1) the waiving shareholder is paying income tax at a higher rate than the receiving shareholder; (2) the waiver is repeated year after year; (3) the waiver results in the company paying a higher dividend to a lower-rate taxpayer (e.g. a spouse). In such cases, HMRC may invoke the settlement provisions in ITTOIA 2005 ss619–648 (settlor-interested settlements), treating the income as belonging to the waiving shareholder for income tax purposes. HMRC may also argue the waiver is a sham if there is no commercial rationale. Dividend waivers therefore require careful structuring with income tax as well as IHT in mind.
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