CG36478 | Death of person with interest in possession: part of settled property

In strictness it could be said the `corresponding part' in an undivided fund is a fraction of each asset (in the example in CG36476, one quarter) remaining in the fund. This could lead to an element of mismatching. Suppose that an interest in possession in one quarter of an undivided fund terminates on the death of the person with the interest, in a case where there is no immediate deemed disposal under Section 71 because of the right of appropriation, see CG37530. In this situation someone will become absolutely entitled to assets representing one quarter of the value of the fund, but only when they are appropriated to him or her. Section 71 (1) would bite on the actual asset leaving the fund, whilst Section 72(1) would only have applied to one quarter of that asset. It is accepted that the trustees have a reasonable time (see CG36480) in which to make their appropriation and have the `corresponding part' regarded as those assets actually leaving the trust fund and going to the ultimate beneficiary. Section 71 (1) applies to these, but the gain is fully relieved by Section 73(1). Section 72(1) does not apply since none of the `corresponding part' of the assets identified in this way remains settled property.

Example

A is entitled to 3/4 of the income of the trust fund and B is entitled to 1/4. The trust fund consists of 1,000 shares of equal value in each of four companies. On B's death B2 is entitled to 1/4 of the capital, but the trustees have an express power of appropriation. If the trustees appropriate 1,000 F Ltd shares to B2, rather than 250 shares in each company, then the method described above enables the trustees to be treated as if the deemed disposal on death was of 1,000 F Ltd shares, with the remaining shares retaining their original cost.

From 22 March 2006 this only applies to certain kinds of interest in possession, see CG36525.