111 Liability to tax in respect of certain sales and mortgages

Summary

This section provides that where an interest in expectancy had been purchased or mortgaged before 1 April 1975, the liability of such purchasers or mortgagees will be limited to what it would have been if the property, on coming into possession, had been chargeable to death duties under the law in force and at the rates applicable at the date the property was purchased or mortgaged.

Details

(1) “death duties” means estate duty/legacy duty and succession duty. The provisions of the section are extended to persons deriving title from a purchaser or mortgagee (e.g. A has bought B’s future interest and dies, leaving that interest to C by will).

(2)(a) - (c) Where an interest in expectancy has been sold or mortgaged prior to 1 April 1975, the liability of the purchaser or mortgagee is limited to the amount for which he/she would have been liable if death duties had remained in force under the law in force and at the rates applicable on the date of the sale or mortgage. The liability so limited is the liability to inheritance tax arising on the life tenant’s death under the settlement in respect of the inheritance taken by the remainderman who has sold or mortgaged his/her reversionary interest i.e. when the interest of the remainderman referred to in section 32 comes into possession.

(2)(d) The charge for any part of the inheritance tax which is greater than the amount referred to in paragraph (2)(b) (i.e. the amount for which the purchaser or mortgagee would have been liable if death duties had remained in force) is made a charge subsequent to the mortgage, despite the provisions of section 60(1) which provides that the tax due in respect of a gift or inheritance shall have priority over all charges and interests created by the donee or successor or any person claiming in right of the successor or on that donee or successor’s behalf.

(2)(e) In relation to the excess of the tax over the limited amount of the liability of the purchaser or mortgagee under the section, any other person (such as the trustee of a settlement) is protected from any liability greater than the remaining trust funds in his/her hands which are held on the same trusts (e.g. where 2 houses are settled on A for life with remainder to B and B sells his/her remainder interest in one of them, the excess tax on that house can be met by selling or charging the other house).

In the case of a mortgagor, his/her liability, or that of a trustee, will not exceed the value of his/her equity of redemption (i.e. the value of the property less the amount required to pay off the mortgage).

(2)(f) The relief given in the section to a purchaser or mortgagee is confirmed by not allowing a right to any other accountable person to be reimbursed by the purchaser or mortgagee for any tax which the accountable person is relieved, or to have a charge on the property taken by the purchaser or mortgagee.

Relevant Date: Finance Act 2015