Release of Life Interest - base value for CGT

A spouse received a life interest in property under her late husband’s will (qualifying IIP). She now wishes to release her life interest to her daughter (sole reversionary beneficiary) as she’s going into care (the will only provides for termination on death/re-marriage). The daughter then wishes to sell the property.

I understand this is a PET for IHT. The property gain is approx £30,000. What are the CGT consequences? I understand that no chargeable gain will accrue - does this mean the daughter acquires at the value at the date of release or the base value at her father’s date of death? Is PPR relevant?

My understanding is that this would be treated as a disposal for CGT purposes by the trustees (from the death value to the current market value). S71(1) TCGA 1992.

PPR may be available to the trustees if the wife has been occupying the property from death, but the trustees should make a claim for the same. s225 TCGA 1992.

The daughter will acquire the property at current market value.

Kind regards

Ihsan Ali
I Will Solicitors Ltd

Thank you very much Ihsan

I agree with Ihsan

The lifetime surrender by mother of her QIIP to her daughter is a PET for IHT.

For CGT there is a deemed disposal (and re-acquisition) by the trustees at the then market value [TCGA 1992 s. 71]; the trustees holding the property as bare trustee for daughter.

PPRR may be available to the trustees under TCGA 1992 s225 (subject to a claim).

On the future sale of the property by daughter a CGT charge will arise (on difference between market values at date of surrender of mother’s interest and date of sale by daughter) subject to PPR.

Malcolm Finney

Thanks Malcolm - does it make any difference for IHT purposes if the release of the life interest by the mother to the daughter is made within 2 years of the date of death, ie I understand that the spouse exemption previously claimed will not be compromised as the mother is now making a PET?