If non-resident individual (A) gives bare ownership of an Italian property to UK resident individual (B) and A retains an Italian usufruct, what is B’s base cost on a future disposal of the property:
(a) before A’s death, i.e., during the subsistence of the usufcut
(b) following A’s death, when B has full unencumbered ownership, the usufruct having come to an end. I am aware of commentary suggesting that section 63 TCGA applies, but I note the commentary in Kessler’s excellent book and agree that this cannot be right where section 63 refers to a “liferent” and “Scotland”.
It occurs to me that there is a disposal when the bare ownership is passed to B and this should be a market value disposal, so B has a market value base cost (although how is that calculated?). But on A’s death, is it correct to say that there is no disposal, so there can be no market value acquisition at that time- section 17(2). Does this mean B’s base cost following A’s death is just whatever the market value of his interest at the date of creation?
James is quite right in reading s.63 as only applying to Proper Liferents and Scotland. However, that does not mean that the accounting and valuation treatment should not be based on a similar underlying principle. The bare ownership increases in value by reference to the life expectancy of the usufructuary, which is by definition wasting, but undefinable until death. My thoughts are that the nu-propriétaire (excuse my French) merely accedes to the full ownership on death of the usufructuary and by definition there is no “disposal”, simply full possession. Civil works on the basis of uncontestable possession, not of the Anglo-Norman concept of better title. If my understanding is correct Scottish law does recognise the accession principle in the disappearance or better, the extinction of the proper liferent with an increase in value of the fee. I would say that whilst there may be no “ disposal “ under the limitative statutory definition of that wretched term, there is an automatic acquisition of full uncontested possession and that the base value on A’s death can only be the value on the date of his death. That is the economics upon which a.63 is based and there is no reason why it should not be applied in other circumstances. The value of the bare ownership on the gift has to include the concept of an automatic uplift on B’s obtaining full possession on A’s death.
Happy to be contradicted….
Peter Harris