Revenue Note for Guidance

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Revenue Note for Guidance

34 Settlement of an interest not in possession

Summary

This section provides that the tax payable on the cesser of a life interest will not be avoided by the remainderman having settled his/her interest on himself/herself.

Details

(1) “event” has the same meaning as in section 33(1).

(2) The tax payable on the cesser of a life interest cannot be avoided where a person who has a future interest in property settled his/her remainder interest on himself/herself.

Example

Where A settles property on B for life and, on B’s death, to C absolutely. While B is still alive, C settles his future interest on himself for life and, on his death, to D absolutely. When B dies, the person becoming entitled in possession is C, but because he takes under his own disposition he might argue that he was entitled to exemption under section 83 (which provides an exemption where a person settles property on himself/herself).

This subsection ensures that C in the example will be liable to tax on B’s death.

The section also applies to “a liability within the meaning of section 28(9)”.

Example

A transfers property to B absolutely subject to the payment of an annuity equal to 1/3rd of the income from the property to C for life. B is taxed on the market value of the property less 1/3rd of that value (i.e. “the appropriate part” – see section 28(9)). If, however, B had settled the property on himself for life, with remainder to his children, this postponed claim for tax could be defeated because when C (the annuitant) died, it could be said that the benefit of the cesser of the annuity came to B as life tenant under his own disposition and is, therefore, exempt from tax under section 83.

The subsection ensures that the claims for tax under the original disposition will stand as if the later disposition had not been made.

(3) Where tax is payable under a disposition other than a disposition referred to in subsection (2) in respect of a later event (e.g. where a person settles a future interest in property on himself/herself for life and after his/her death to his/her children), the normal claims will arise when he/she dies and his/her children take inheritances from him/her.

Relevant Date: Finance Act 2015