CG36471 | Death of person with interest in possession: no separate funds

TCGA92/S72 (5)

Segregation of the settled property into separate funds is not essential to the application of Section 72(5). See Pexton v Bell, 51TC457, a case which concerned the pre-1971 provisions under which there was a charge when a life interest terminated, on the whole of the property subject to the life interest. The Court held that the word `part' in the expression `part of the settled property' should be construed as including an undivided share of the whole of the settled property, even though no division into funds had occurred.

For example, if there are two life tenants entitled to the income of a trust fund in equal shares, Section 72(5) requires each life tenant to be treated for the purposes of Section 72(1) as having the exclusive life interest in a notional fund comprising half of each asset held by the trustees, irrespective of the nature of the assets, provided that neither life tenant has any right of recourse to the share of the other.

CG36474 applies in appropriate cases to determine the composition of the notional fund.