The Gazette 1985

SEPTEMBER 1985

GAZETTE

£

Settlor to R (Section 23(1) 30,000 at 50% =

15,000 15,000

R to T (Section 23(2))

30,000 at 50% =

Less Credit for Section 23( 1)

(15,000)

Tax Payable

NIL

T to children

30,000 at 50% =

15,000

(Section 23(2)) Less Credit for Section 23(1) & (2) charges

(15,000) NIL

Total Tax Payable Net estate after tax Effective Rate

15,000 15,000

Authorised Wang Dealer For The Legal Profession

50%

Therefore, if the three charges to tax amounted to £10,000, £15,000 and £3,000, or £1,000, £2,000 and £15,000, the total tax payable would be £15,000 in each case. It is important to note that while Section 62 grants relief for tax paid, the inheritances taken are still aggregable with subsequent gifts or inheritances. For instance, in Example 4, the inheritance of £30,000 taken by T would be aggregable with any benefits taken by him since 2 June 1982. 8 Section 62( 1) has retrospective effect to the date of the coming into operation of Capital Acquisitions Tax. 9 Section 62(2) expressly states that no interest is payable on any repayment of tax arising by virtue of Section 62( 1) where the tax was paid prior to the date of passing of the Finance Act 1985. 10 Section 15, CGTA 1975, imposes a charge to tax on the trustees of a settlement" in certain circumstances. The trustees are taxed as if they were a single body of persons and may avail of the normal reliefs and exemptions subject to certain exceptions. 12 Section 15(2), CGTA 1975, states that a 'gift in settlement ' is a disposal of the property thereby becoming settled property. Therefore, if a settlor executes a settlement during his life, he makes a disposal of the settled property at market value for Capital Gains Tax purposes and a charge to tax may arise. 13 No charge to Capital Gains Tax arises on the creation of a settlement by will, under Section 14, CGTA 1975. Section 15(3) states that when a beneficiary becomes 'absolutely entitled' 14 to settled property, that property is deemed to have been disposed of and immediately re- acquired by the trustees at market value for the purposes of imposing a charge to tax. However, Section 15(4) provides that no charge to tax will arise if the beneficiary becomes absolutely entitled to settled property on the death of the life tenant. 15 In contrast, Section 15(5) provides that on the termination of a life interest in settled property, the assets which do not thereby cease to be settled property are deemed to be disposed of and re-acquired at market value by the trustess. The following example illustrates the position:— 2. Capital Gains Tax A. Section 15, Capital Gains Tax Act 1975

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Example 5 S settles property by will "To LT1 for life, with remainder to LT2 for life, with remainder to R absolutely". There is no charge to Capital Gains Tax on the creation of the settlement, as it arises only on the death of the settlor. However, on the death of LT1, a charge to Capital Gains Tax on the entire settled property will arise under Section 15(5) because that property remains settled property. No charge to Capital Gains Tax would arise on the death of LT2, because R would thereby become absolutely entitled on the death of the life tenant and Section 15(4) would apply. Therefore, if a remainderman disposes of his interest and a charge to inheritance tax arises under Section 23, CGTA 1976, on the death of the life tenant, no charge to Capital Gains Tax will arise on the settled property to the extent that the transferee becomes absolutely entitled on the death of the life tenant within Section 15(4), CGTA 1975. A charge to tax will arise on any property which remains settled property and to which the transferee does not become absolutely entitled under Section 15(5), CGTA 1975. No charge to Capital Gains Tax will arise on

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