The Pre-Budget Report included a highly technical change to inheritance tax on trusts which included a reversionary right to income. Such a reversionary right represents an asset for inheritance tax purposes and enables a gift to a trust to be made with only a very small transfer of value. However, the change in the inheritance tax regime for trusts introduced in 2006 meant that no charge to tax would arise on the occasion when the reversionary interest falls into possession.

There is now to be a new charge to inheritance tax when a reversionary interest comes to an end and is replaced by an actual interest by the settlor or his/her spouse. That transfer will be a chargeable transfer equal to the value of the reversionary interest, chargeable at the lifetime rates.

This only applies to reversionary interests arising after 9 December 2009, and it remains to be seen whether this change achieves what seems to be the desired effect.