Commentary

I5.1021 CGT on termination of an interest in settled property

IHT, trusts and estates

I5.1021 CGT on termination of an interest in settled property

I5.1021 CGT on termination of an interest in settled property

CGT on termination of settlement interest—overview

The CGT treatment when an interest in settled property terminates depends on whether the termination takes place on the death of the person entitled to the interest.

One set of rules applies to all trusts where an interest ends other than on death1.

However, special rules apply where a trust with an interest in possession ends on the death of the beneficiary2.

Termination other than on death—all trusts

Where an interest in settled property comes to an end other than on the death of the person entitled to it, and another person then becomes absolutely entitled to the property, the trustee is deemed to have disposed of the property, and immediately reacquired it as nominee for the beneficiary, at market value3 (see I5.1017).

A chargeable gain or allowable loss arises for the trustees although they can claim holdover relief (see further below) in the usual circumstances, for example where:

  1.  

    •     the disposal is a chargeable transfer for IHT purposes4

  2.  

    •     the property was previously held on accumulation and maintenance trusts, or on trusts for bereaved minors or age 18-25 trusts5

  3.  

    •     the assets are qualifying business assets , eg unquoted shares6

Termination on death—interests in possession

Definition of interest in possession

Since special CGT rules apply on the termination of an interest in possession on the death of the beneficiary, it is essential to be able to determine whether such an interest exists. However, there is no definition of

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