Commentary

I3.720 Tracing and contributions (land and chattels)

IHT, trusts and estates

I3.720 Tracing and contributions (land and chattels)

I3.720 Tracing and contributions (land and chattels)

The definitions of the disposal and contribution conditions refer to proceeds on disposal 'directly or indirectly' applied1, or consideration 'directly or indirectly' provided2. Clearly, employment of the word 'indirectly' broadens significantly the scope of these provisions. The effect is to equate any proceeds or contribution invested in acquiring intermediate property with the eventual proceeds on disposal of that property. Replaced property may be any kind of property; for example, a charge under the pre-owned assets rules relating to the occupation of land is not precluded where the land in question replaced other property such as chattels or intangible property.

Example 1

In 2000 Mrs E disposed of shares to her goddaughter, who sold them and invested the proceeds in a flat (the relevant land) in which Mrs E now lives. Subject to possible exclusions and exemptions which will be considered later, the disposal condition is met by virtue of FA 2004, Sch 15, para 3(2)(a)(i) and Mrs E may face a tax charge. It is clear that the proceeds on disposal of the 'other property' that Mrs E owned (ie the shares) were applied directly in acquiring the relevant land.

Example 2

In 1998 Miss F bought a new Bentley and disposed of it to her unmarried partner. He sold it in 2001 and used the proceeds to acquire three classic cars. One of these appreciated in value sharply, and he sold it in 2003 and used the proceeds to acquire a new Ferrari (the chattel) which

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