35 Enlargement of interests

Summary

This section deals with the situation where a person has a limited interest in property and that interest is enlarged to an absolute interest (e.g. because the owner of the limited interest takes a gift or inheritance of the remainder interest). The section provides that tax is charged on the enlarged interest on a taxable value equal to the difference between the value of the entire property at the valuation date and the value of the limited interest at that date.

The section does not apply where the enlargement occurs under the disposition under which the limited interest was created.

Details

(1) Where a person who has a limited interest in property takes a further interest in that property and becomes the absolute owner, the value of the latter interest at the valuation date is reduced by the value of the limited interest.

The value of the limited interest is valued in accordance with the Rules in Schedule 1 for a limited interest in the whole property commencing on the date of the gift and ending on the last day of the original term of the limited interest.

(2) “value” is defined for the purposes of subsection (1)(a) as the amount that would be the incumbrance-free value within the meaning of section 28(1) if the limited interest were taken as a taxable gift or taxable inheritance on the valuation date.

(3) The deduction provided for in subsection (2) does not apply where the enlargement of the limited interest occurs under the disposition under which the limited interest was created.

Relevant Date: Finance Act 2015