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Settled property passing on death

The general equitable principle is that IHT is borne by capital whilst any interest on IHT is payable out of income¹.

The IHT on property which was comprised in a settlement immediately before the death is not treated as a testamentary expense².

This applies to settled property in which the deceased had an interest in possession immediately before his death³, even if the property vests in the deceased's personal representatives (PRs) or is disposed of by the deceased's Will, even where it is disposed of in exercise of a general or special power of appointment, or in exercise of the statutory power to dispose of entailed property⁴.

Property subject to a general power of appointment exercisable by a testator's Will falls into his residuary estate if there is a general residuary gift and he does not express an intention not to exercise the power⁵.

Any money held on the trusts of a settlement may be used to pay IHT