Trust set up by Deed of Variation of Will and s73 TCGA 1992

D died in 2003 and under her will left the whole of her residuary estate to her two children, A and B, equally. In March 2004, A and B made a variation of D’s will so as to leave a legacy of some shares on life interest trusts for their father, (and D’s widower), C. The life interest was subject to an overriding power of appointment, but failing the exercise of that, on C’s death the settled legacy was to be distributed under the terms of the original will, i.e. to be divided equally between A and B. Elections were made under s142 IHTA 1984 and under s62 (6) of TCGA 1992.

C has now died. The power of appointment was not exercised so the settled legacy passes outright to A and B equally. The shares have risen significantly in value since 2003. The question I have is, are A and B treated as settlors for the purposes of the reverter to settlor provisions in s73 TCGA 1992, with the effect that there is no CGT uplift on C’s death, but instead a no gain no loss on the deemed disposal and reacquisition on C’s death? I have been unable to find anything in the text books on this point.

If that is the case, does it make any difference that this variation was made before the introduction of s68C TCGA 1992 by the Finance Act 2006, which set out the rules for identification of a settlor following a deed of variation and a s62(6) TCGA 1992 election?

I should be grateful for the comments of other Forum members.

Rosemary Milns
Hunters inc. May May & Merrimans

I do not believe that the fact of the DoV being effected pre TCGA 1992 s68C alters the position. S68C merely translated into legislation the decision in Marshall v Kerr, namely, the settlors are in your case A and B (not D).

On C’s death the settled property reverts to the settlors A and B absolutely with the consequence that there is no CGT uplift but a simple deemed disposal and reacquisition by trustees such that the trustees make neither gain nor loss under TCGA 1992 s73.

Malcolm Finney