38 Disposition enlarging value of property

Summary

This section deals with the situation where a person takes a beneficial interest in property which has the effect of increasing the value of any other property which he/she has already received from the same disponer. The increase in the value of the original property is deemed to be a gift or inheritance, as the case may be, taken on the date when he/she received the additional property.

The object of the section is to prevent the splitting of property for tax avoidance purposes in cases where the market value of the whole property is greater than the sum of its parts.

Details

(1) “company”, in subsection (4), means a private company within the meaning of section 27.

(2) “property” does not include any property to which a donee or successor became beneficially entitled in possession prior to 28 February 1969.

(3) Where the taking by any person of a beneficial interest in any property (referred to as the additional property) under any disposition made by a disponer has the effect of increasing the value of any other property (referred to as the original property) to which that person is beneficially entitled in possession, and which has been derived from the same disponer, the following provisions apply:

• (a) the increase in value so effected is deemed to be a gift or an inheritance, as the case may be, arising under that disposition and taken by that person, as donee or successor, from that disponer, at the time he/she took the beneficial interest in the additional property;
• (b) the original property is treated as having been increased in value if the market value of that property at the time referred to in paragraph (a) would be greater if it was sold as part of an aggregate of the original property and the additional property rather than as a single item of property. The increase in value for the purposes of the section will be the amount by which the market value of the original property, if sold at that time as part of such aggregate, would be greater than the amount of the market value of that property if sold at that time as a single item of property;
• (c) the additional property will, for the purpose of determining its market value, be deemed to be part of an aggregate of the original property and the additional property; and
• (d) the market value of any property which is to be valued as part of an aggregate of property will be ascertained as being so much of the market value of such aggregate as may reasonably be attributed to that part.

(4) The re-valuation of the original gift will apply even if, at the date of the second transfer, the beneficiary has disposed of the original property within the previous 5 years (otherwise than for full consideration in money or money’s worth) or has disposed of it to a private company of which he/she has control within the meaning of section 27(4)(b).

Relevant Date: Finance Act 2015