The Gazette 1985

GAZETTE

SEPTEMBER 1985

value of the property taken by the remainderman

and taxed under Section 24(1).

Therefore, two charges to tax would arise on the same

person, on the same property on the same event. At the

same time, the effective rate of tax on the second benefit

would be higher than the first because of aggregation.

To counteract this, Section 61 Finance Act 1985

provides that in such circumstances the value of the

property deemed to be taken by the remainderman is not

to be included more than once in any aggregate under

Section 24 CATA 1976. Section 61(1) states:—

"Property in respect of which tax is chargeable

more than once on the same event

shall not be

included more than once in relation to that event in

any aggregate

referred to in the second schedule of

the Principal Act." (Italics added).

It appears that the practice of the Revenue

Commissioners will be to charge tax on the basis that the

benefit which produces the largest liability to tax is

aggregated. An example will illustrate the position:—

Example 7

Post Finance Act 1985

R is remainderman of a settlement valued at £30,000 in

which LT has a life interest. LT surrenders his life interest

to R. The following charges to tax arise:—

Settlor to R (Section 24(1)) 30,000 at 50% =

15,000

LT to R (Section 24(2)

30,000 x (say 0.6

= 18,000 x 50% x

75% (Gift Tax) =

6,750

In this example under Section 61 R would be treated as

if he had only received an inheritance of £30,000 and only

this amount would be aggregated with previous benefits

taken since 2 June 1982. Similarly, if R subsequently

received gifts or inheritances, these would be aggregated

with the amount aggregable under Section 61 and the

other gift or inheritance chargeable under Schedule 24

would be ignored.

As regards the second charge, under Section 62 FA

1985 the inheritance or gift tax payable on the aggregated

inheritance would be available as a credit to cover this

liability.

Section 24(4) defines 'event' as including a death and

the expiration of a specified period. Section 61, FA 1985,

applies only to gifts or inheritances taken after 2 June

1982, and interest is not payable on any repayment of tax

arising under Section 61 where the tax was paid prior to

the date of passing of the Finance Act 1985.

Paragraph 7 Part I, Second Schedule, CATA 1976,

which sets out the method of computing tax on benefits

taken on the same day, does not apply to benefits

chargeable under Section 24.

ii)

Remainderman to life tenant

If the remainderman surrenders his interest to the life

tenant, two charges to tax will arise, firstly, under Section

24( 1 )on the deemed death of the life tenant and, secondly,

under Section 24(2) and Section 23(1) on the gift or

inheritance of the remainder interest. No aggregation of

benefits would arise under the provisions of the Finance

Act 1984 as the property would be taken by different

beneficiaries. Relief would be available under Section 62,

FA 1985.

iii)

Partition of Trust Assets

if the remainderman receives a benefit from the life

tenant on the termination of the settlement, or vice versa,

on the partition of the trust assets a charge to tax will arise

and Section 61, FA 1985, will apply as in (i) and (ii)

above. Relief would also be available under Section 62,

FA 1985.

Valuation of Benefits charged under

Section 24, CATA 1976

The value of the benefit taken on the advance

termination of a limited interest by the beneficiaries of a

settlement for tax purposes is valued according to who

takes the benefit for the purpose of the charge to tax under

Section 24.

Life tenant to remainderman

If the life tenant surrenders his interest to the

r ema i n d e rma n, the p r a c t i ce of the Revenue

Commissioners is to value the life interest according to

the age of the life tenant using the method of calculation

set out in the first Schedule CATA 1976.

ii)

Remainderman to life tenant

If the remainderman transfers his interest to the life

tenant, Section 26(1), CATA 1976, provides that tax on

the remainder interest is calculated on the value of the

entire property, less the value of the limited interest

calculated in accordance with the provisions of the First

Schedule, CAT 1976.

Section 26(3) provides that this relief does not apply

where the enlargement of the limited interest occurs under

the terms of the disposition under which the original

limited interest was created.

iii)

Partition

It would appear that on the partition of trust property

between the beneficiaries, the benefit taken by each would

be valued actuarially in the absence of express statutory

rules.

Capital Gains Tax

Sections 15 and 24(4), Capital Gains Tax Act, 1975 and

Section 63, Finance Act 1985, may also apply to the

advance termination of a life interest within Section 24,

CATA 1976.

If the remainderman surrenders or sells his future

interest to the life tenant, no charge to Capital Gains Tax

arises if the surrender is exempt within the terms of

Section 24(4), CGTA 1975. However, a charge to Capital

Gains Tax may arise under Section 15(3), CGTA 1975 if

the life tenant thereby becomes absolutely entitled to the

trust property. No relief is available under Section 15(4),

CGTA 1975 because the life tenant does not take on a

death within that sub-section.

Similarly, if the life tenant surrenders or sells his

interest to the remainderman, no charge arises on that

disposal if the conditions in Section 24(4), CGTA 1975,

are fulfilled. If the remainderman thereby becomes

absolutely entitled, a charge arises under Section 15(3),

CGTA 1975. No relief is available under Section 15(4),

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