Trusts and Estates

The Briefing above discusses the CGT problems which may arise on the death of the life tenant when a CGT hold-over relief was claimed on the making of the settlement. A discussion of quirky rules applying on the death of a life tenant would not be complete without covering the provisions of Section 73 (1) 3() TCGA 1992. This applies where, on the death of the life tenant, the settled property “reverts to the disponer”, an expression which taken to meant the settlor. “Reverter to Settlor” Settlements enjoy special treatment for IHT purposes. Under Section 53 (2) of the IHT Act 1984, there is no IHT charge on the death of the life tenant so it is hardly surprising that there is no CGT-free “uplift”.There is no immediate CGT charge either. Section 73 (3) TCGA 1992 provides that the disposal (and corresponding reacquisition by the trustees, as nominees for the settlor as remainderman) takes place on a no gain/no loss basis.

It is a well-known, general rule that death wipes out chargeable gains. When the owner of an asset dies, then under Section 62 (1) of the Chargeable Gains Act 1992 all the assets comprised in his estate are treated as acquired by the personal representatives for a price equal to the then market value. The deceased is not regarded as having made a disposal of the assets concerned giving rise to any chargeable gain. Of course, IHT may be payable instead, and the rationale of the effective CGT exemption on death is that it avoids double taxation, with both IHT, and CGT being charged on the same occasion. Nevertheless, the favourable CGT treatment will apply even if there is no IHT to pay, because the deceased’s estate is within the nil rate band, or is within eg, the exemption for transfers between spouses, or enjoys Agricultural or Business Property Reliefs at the rate of 100 per cent.

Increasingly, testators will leave property in a number of jurisdictions. They may, at different times in their lives, enjoy different domiciles, and leave beneficiaries who enjoy different domiciles. It is, therefore, quite usual for a Will to be limited, in terms to property inside, or outside, a particular jurisdiction and for the Will to specify the system of law which is to govern its provisions. Might a different system of law govern an agreed variation of the Will? This was the question considered by the Court in Re Barton Deceased Tod v Barton (2002) EWHC 24 (Ch)

An annuity can be defined as “an insurance contract that guarantees to pay out annual amounts for a fixed term”. This definition is to be found in the glossary of technical terms on Page 49 of the Inland Revenue’s February Consultation document “Modernising Annuities”. That consultation document discusses pension annuities. Like much else in the consultation, the definition of an “annuity” can be criticised, not least because with most annuities, the fixed annual payments are intended to last for the lifetime of an individual which is usually an uncertain, rather than fixed, term. One of the ideas canvassed in the Revenue consultation paper is a suggestion that fixed term annuities might be able to be offered. However, in general, where an annuity is left by Will to a beneficiary the payment will normally be intended to continue throughout the beneficiary’s lifetime.