I am acting in a trust in which the life tenant has a qualifying interest in possession. It has been agreed between the life tenant and the remaindermen that the trust should be wound up and the funds passed to the remaindermen (who are individuals) outright, i.e. the life tenant intends to surrender her life interest to accelerate the interests of the remaindermen. This will trigger CGT which will be paid by the trustees from the trust fund.
My question is whether the CGT would be deductible in calculating the amount of the chargeable transfer (if the life tenant were to fail to survive by 7 years).
S 165(1) and (2) provide as follows:
(1) Where a chargeable transfer is or includes a disposal of an asset and on the disposal a gain accrues to the transferor for the purposes of the 1992 Act, then if—
(a)the whole or part of the gain is a chargeable gain or a development gain, and
(b)the whole or part of any capital gains tax or income tax chargeable on the gain is borne by the donee (within the meaning of section 282 of that Act),
the amount of the tax so borne shall be treated as reducing the value transfered by the chargeable transfer.
(2)Subsection (1) above shall not apply where the chargeable transfer is made under Part III of this Act and the gain accrues to the trustees of the settlement; but if in such a case any capital gains tax chargeable on the gain is borne by a person who becomes absolutely entitled to the settled property concerned, the amount of the tax so borne shall be treated as reducing the value transferred by the chargeable transfer.
Many thanks
Margaret Gale