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GAZETTE
SEPTEMBER 1985
£
Settlor to R (Section 23(1) 30,000 at 50% =
15,000
R to T (Section 23(2))
30,000 at 50% =
15,000
Less Credit for Section 23( 1)
(15,000)
Tax Payable
NIL
T to children
30,000 at 50% =
15,000
(Section 23(2))
Less Credit for Section 23(1) & (2) charges
(15,000)
NIL
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Total Tax Payable
15,000
Net estate after tax
15,000
Effective Rate
50%
Therefore, if the three charges to tax amounted to
£10,000, £15,000 and £3,000, or £1,000, £2,000 and
£15,000, the total tax payable would be £15,000 in each
case.
It is important to note that while Section 62 grants relief
for tax paid, the inheritances taken are still aggregable
with subsequent gifts or inheritances. For instance, in
Example 4, the inheritance of £30,000 taken by T would
be aggregable with any benefits taken by him since 2 June
1982.
8
Section 62( 1) has retrospective effect to the date of the
coming into operation of Capital Acquisitions Tax.
9
Section 62(2) expressly states that no interest is payable
on any repayment of tax arising by virtue of Section 62( 1)
where the tax was paid prior to the date of passing of the
Finance Act 1985.
10
2.
Capital Gains Tax
A.
Section 15, Capital Gains Tax Act 1975
Section 15, CGTA 1975, imposes a charge to tax on the
trustees of a settlement" in certain circumstances. The
trustees are taxed as if they were a single body of persons
and may avail of the normal reliefs and exemptions
subject to certain exceptions.
12
Section 15(2), CGTA 1975, states that a
'gift in
settlement
' is a disposal of the property thereby becoming
settled property. Therefore, if a settlor executes a
settlement during his life, he makes a disposal of the
settled property at market value for Capital Gains Tax
purposes and a charge to tax may arise.
13
No charge to
Capital Gains Tax arises on the creation of a settlement
by will, under Section 14, CGTA 1975.
Section 15(3) states that when a beneficiary becomes
'absolutely entitled'
14
to settled property, that property is
deemed to have been disposed of and immediately re-
acquired by the trustees at market value for the purposes
of imposing a charge to tax. However, Section 15(4)
provides that no charge to tax will arise if the beneficiary
becomes absolutely entitled to settled property on the
death of the life tenant.
15
In contrast, Section 15(5)
provides that on the termination of a life interest in settled
property, the assets which
do not thereby cease to be settled
property
are deemed to be disposed of and re-acquired at
market value by the trustess.
The following example illustrates the position:—
Example 5
S settles property by will "To LT1 for life, with
remainder to LT2 for life, with remainder to R
absolutely". There is no charge to Capital Gains Tax on
the creation of the settlement, as it arises only on the death
of the settlor. However, on the death of LT1, a charge to
Capital Gains Tax on the entire settled property will arise
under Section 15(5) because that property remains settled
property. No charge to Capital Gains Tax would arise on
the death of LT2, because R would thereby become
absolutely entitled on the death of the life tenant and
Section 15(4) would apply.
Therefore, if a remainderman disposes of his interest
and a charge to inheritance tax arises under Section 23,
CGTA 1976, on the death of the life tenant, no charge to
Capital Gains Tax will arise on the settled property to the
extent that the transferee becomes absolutely entitled on
the death of the life tenant within Section 15(4), CGTA
1975. A charge to tax will arise on any property which
remains settled property and to which the transferee does
not become absolutely entitled under Section 15(5),
CGTA 1975. No charge to Capital Gains Tax will arise on
245