S.43(2) ITA 1984 refers to “disposition or dispositions” both in the first and second paragraphs in which a settlement, for IHT purposes only, is defined.
Articles 754, 757 and 912 of the French Code civil lay down clearly that the transfers on death to reserved heirs of which the surviving spouse is listed as one, take place by devolution not by way of a disposition. The time when a disposition is required is generally when a transfer is made to a person outside the reserved blood line or the spouse.
The surviving spouse has the right to a usufruit on the deceased spouse’s decease which may be extended by a testamentary disposition, but which does not change the process by which it takes place namely by a devolution, through articles 724 and 731. .
That meas that s.43(2) ITA 1984 is of no application to a surviving spouse’s legal usufruit as it is not “disposed of” by an express disposition and therefore by a settlement. The fiction in s.43(2) ITA 1984 ends where there is no disposition or dispositions.
To cite Lord Wilberforce’s succinct summary of a fundamental principle of the law of England, you cannot have a settlement without a trust (Roome and Denne v. Edwards). Settlements developed through the Chancellor’s Court in relation to the common law and could only operate through the medium of a trust. Therefore absent a trust “disposition”, there can be no settlement. It is only the legal rights in a deed creating a Scottish Proper Liferent that are treated as settled property by reerne to the deed only, not I hasten to add as “an interest in possession in settled property” the latter being the issue which their Lordships addressed in Pearson, not the somewhat imprecise term a life interest referred to in the headnote and then fastened upon by the Revenue.
That is why the pre-2006 massage of a Treaty credit referred to in a previous posting was only a tolerance, not a form of legal disposition. No settlement is in fact created by the surviving spouse taking their statutory rights which devolve to them by operation of law not by way of a disposition or as some form of a “beneficial interest” invented by the overheated imagination of an English civil servant.
Furthermore as such, a usufruit extinguishes at death by law. There is no transfer or disposition of it unless it is expressed to be successive.
There is a fundamental difference between organising or restricting the extent of the devolution by a will and an outright testamentary disposition of the type defined in s.43(2) ITA and required in its second paragraph.
Peter Harris
www.overseaschambers.com