Revenue Note for Guidance
32 Dealings with future interests
Summary
This section deals with the situation where a future interest in property is disposed of (whether or not for full consideration) before it becomes an interest in possession. The purchaser or transferee of that future interest is liable to capital acquisitions tax as if he/she was the donee or successor under the original disposition. However, tax is computed by reference to the relationship between the actual donee or successor under the original disposition.
Details
(1) In subsection (2), “benefit” includes the benefit of the cesser of a liability referred to in section 37.
(2) Where a person disposes of a future interest in property before it becomes an interest in possession so that when that interest comes into possession it is taken by a person other than the person who was entitled to the property under the original disposition, tax will be payable as if the latter person became entitled to the property.
Example
A settles property on B for life and, on B’s death, the property passes to C absolutely. While B is still alive, C assigns his interest to D. On B’s death, tax is payable as if D took the property.
The person actually entitled to the property (D in the example) is the person made liable to deliver a return and pay the tax. However, the tax payable is computed by reference to the relationship of the donee or successor to the disponer.
(3) The provisions of subsection (2) will not prejudice any charge to tax in respect of any gift or inheritance affecting the same property or any part of it under a disposition other than the disposition made by a person other than the original disponer.
Example
No tax is charged on the transfer by C of his future interest to D until D in the above example takes an interest in possession i.e. on B’s death. However, 2 claims for tax have been postponed i.e.:
tax on the benefit taken by D (as transferee from C) from A (in effect, C’s tax, payable by D);
- tax on the benefit taken by D directly from C (D’s own tax).
There could, of course, be more than 2 such claims arising simultaneously if, for example, D also died before the life tenant, leaving his future interest to E, who also died before the life tenant leaving his interest to F, and so on.
[Where more than one charge to tax on the same property arises on the same event, the tax which is earlier in priority is allowed as a credit against the tax which is later in priority – see note on section 105.]
Relevant Date: Finance Act 2015