Revenue Note for Guidance

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Revenue Note for Guidance

CHAPTER 3

Miscellaneous reliefs

103 Relief from double aggregation

Summary

This section gives relief in respect of property which is settled on express trusts and provides that where the same property is chargeable to tax more than once on the same event it will not be included more than once in any aggregate for the purposes of computing tax.

Details

(1) Property which is chargeable to tax more than once on the same event should be included only once in relation to any aggregate referred to in Schedule 2, which deals with the computation of tax.

The scheme of the Act is to tax an interest in possession and not to tax a future interest until such future interest becomes an interest in possession. Thus, if A settles in his lifetime property on B for life, with remainder to C absolutely:

  • B, on the execution of the settlement, takes a gift of a life interest in the property from A, and
  • C, on B’s death, takes an inheritance of an absolute interest in the property from A.

Section 33 deals with the situation where, in this example, B releases his life interest to C. The effect of section 33(2) is that B is treated as dying immediately before the release. As a consequence, tax becomes payable in respect of the property taken by C from A. In addition, C takes a gift from B on the release of B’s life interest in the property which is subject to a charge for tax. This charge is preserved by section 33(3). Thus, on the same event, i.e. the release of the life interest by B, 2 claims for tax arise as follows:

  • on the absolute interest in the property taken by C from A, and
  • on a life interest in the property taken by C from B.

To remedy the situation, in assessing tax on the earlier claim (i.e. on the property taken by C from A) the property in the later claim (i.e. on the property taken by C from B) will not be aggregated.

(2) The claim for tax on the market value of the property taken by C from A in the example above takes precedence since section 33(2) deems that the death of A happens before the release. Accordingly, the provisions of paragraph 5 of Part 1 of Schedule 2, which deal with benefits taken on the same day, do not apply.

Relevant Date: Finance Act 2015