I am advising a client in respect of the assignment or release (as appropriate) of her reversionary interest.
On the death of testatrix in 1992, 50% of residue passes to Daughter A for life and then on to Daughter B for life and then on to granddaughter.
Daughter B wishes to release/assign her life interest (subject to A’s interest) so that on A’s death, the IPDI simply ends and capital vests in granddaughter.
Am I correct that B’s life interest is classed as a reversionary interest per s48 IHTA?
What is the best way of dealing with this?
a. B releases her interest as then granddaughter will receive (query precedent – similar to a surrender of vested life interest?); or
b. Can B assign her interest to granddaughter? Would her interest then become absolute on A’s death?
Yes, for IHT purposes, B’s entitlement during the life of A is exclude property.
Provided that there are no conditions which the granddaughter must fulfil (e.g. to survive A and/or B), I would be inclined to suggest an assignment of B’s entitlement with the stated intention that the entitlements should merge upon A’s death. I am aware that some practitioners take the view that an assignment in these circumstances will not give rise to a merger of interests, hence my suggestion that this is spelt out.
If there are conditions upon the granddaughter inheriting the remainder interest, an assignment might result in her having an interest in possession “pour autre vie” one consequence of which, I believe, is that there will be CGT free uplift on A’s death.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Yes, B’s life interest is a reversionary interest (ie a future interest) during A’s lifetime. Following A’s death granddaughter’s interest is then a reversionary interest whilst B is alive.
As a consequence, B’s interest is excluded property. The surrender or assignment by B of B’s remainder interest would accelerate the granddaughter’s interest (ie she will take absolutely). No IHT consequences.
For CGT purposes, TCGA 1992 s71 will be in point.