40 Free use of property, free loans, etc.

Summary

This section provides that where a person, who is not beneficially entitled in possession to property, is allowed the free use of the property or takes an interest-free loan, he/she will be taxed on the basis that he/she takes a gift, in each year, of the value of the use of the property for that year. The section will apply, for example, to persons who are objects of a discretionary trust and are allowed the free use of trust assets and to a person occupying property under a disposition which may be revoked (see section 39).

Details

(1) “relevant period”, in relation to any use, occupation or enjoyment of property, means the period of 12 months ending on 31 December in each year.

(2) If a person who is not beneficially entitled to property in possession is allowed to have the use, occupation or enjoyment of any property other than for full consideration in money or money’s worth, that person will be deemed to take a gift in each relevant period (see below) during the whole or part of which he/she is allowed to have such use, occupation or enjoyment.

(3) A gift referred to in subsection (2) is deemed to consist of a sum equal to the difference between the amount of any consideration, in money or money’s worth, given by the person referred to in subsection (2) for such use, occupation or enjoyment and the best price obtainable in the open market for such use, occupation or enjoyment.

(4) The gift or inheritance is treated as being taken on the last day of the relevant period i.e. 31 December or, if earlier, on the date of the cesser of the use, occupation or enjoyment.

(5) Where the use, occupation or enjoyment of property is allowed to a person who is not beneficially entitled in possession to that property under a disposition—

• (a) made by will;
• (b) where the date of the disposition is on or after 1 April 1975 and within 2 years prior to the date of death of the disponer; or
• (c) which is a disposition inter vivos and the use, occupation and enjoyment is had by that person after the cesser of another person’s life interest,

references in subsections (2), (3) and (4) to gifts are treated as references to inheritances.

(6) The sum referred to in subsection (3) is deemed not to be situated in the State at the date of the gift or at the date of the inheritance where the disponer was not domiciled in the State at that date and where that date is before 1 December 1999. This is also the case where the disponer or the donee/successor are not resident or ordinarily resident in the State on the relevant date, where that date is on or after 1 December 1999. In the absence of this provision, the gift deemed to have been taken under subsection (3) would be regarded as being located in this country and might be taxable.

Relevant Date: Finance Act 2015