CG36546 - 2006 IHT changes: CGT treatment from 22 March 2006

For CGT there is in particular a disposal:

  • when assets are transferred into a trust, even though the settlor has retained some kind of interest (See TCGA92/S70),
  • when a beneficiary becomes absolutely entitled as against the trustee (See TCGA92/S71(1)),
  • when the trustees of one settlement become absolutely entitled as against the trustees of another (see Hoare Trustees v Gardner 52TC53) and
  • when legislation specifically provides that there is deemed to be a disposal, for example TCGA92/S72, where a person with an interest in possession dies, and the property continues to be settled.

But there are many situations where the chargeable gain is reduced because of a relief or exemption.

If there is an allowable loss, restrictions on the use of the loss apply if the transferor and transferee are connected persons. See TCGA92/18 (2) and TCGA92/286 (3)and CG14561.

Where a person with an interest in possession in settled property dies on or after 22 March 2006, then under TCGA92/S72 the special death rules only apply in certain specified cases namely where there is an actual interest in possession and it is one of the following:

  • an immediate post death interest (CG36542),
  • an interest to which the beneficiary became entitled before 22 March 2006 (CG36542),
  • a transitional serial interest (CG36542),
  • a Disabled Actual IIP (CG36543),
  • a trust for a bereaved minor where the minor has an interest in possession (CG36544) and
  • an 18 – 25 trust where the deceased unusually had an interest in possession and dies under the age of 18 (CG36544).

It also applies in two cases which are settled property for IHT, whether or not they fall into any of the first three bullets

  • a Scottish proper liferent, under TCGA92/S63 and
  • a Northern Irish interest limited for life, under TCGA92/S63A.

Where the interest is within any of the above eight bullet points

  • to the extent that the property continues to be settled property there is a deemed disposal and reacquisition by the trustees at market value, but no chargeable gain or allowable loss, see CG36450 and TCGA92/S72. This bullet and the next describe what is known as the “death uplift”;
  • to the extent that it ceases to be settled property the disposal under section 71(1) generates neither chargeable gains nor allowable losses, see CG36454 and TCGA92/73;
  • if the settled property passed into trust subject to a hold-over claim, the above exemptions are lifted, but the chargeable gain is restricted to the amount held-over, see TCGA92/S74.