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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Death: non-trust life interests: Scottish proper liferents

TCGA92/S63 and IHTA84/S43 (4)

In Scotland the expression ‘liferent’ is used to describe the situation where theincome from particular property is to be paid to a person, the liferenter, for a specifiedperiod, generally his or her lifetime. At the end of the period the property willgenerally pass to a person known as the fiar.

There are two ways in which a liferent can be set up. In the first case, where theinterest is known as an improper liferent, the property is vested in trustees whoadminister the property and pay the income to the liferenter. In general the trustees havethe power to sell the property in question and replace it by other property, whether landand buildings or other assets. On the death of the liferenter the provisions of s.72, s.73and s.74 TCGA apply as appropriate. See CG36450+.

In the second case, the title to heritable property (land and/or buildings) is held by theliferenter. In this situation he or she is a proper liferenter. A proper liferenter cannotdispose of a greater title than his own. He cannot dispose of the property in his will. Onhis death the property passes to the fiar.

Where property in Scotland passes to a person for life under a will, and there is nosuggestion that it is to be held by trustees, he has a proper liferent.

A proper liferent does not make the relevant property settled property. IHTA84/S43 (4)(c)provides that it is settled property for IHT purposes. TCGA does not go so far, but S63provides that the person entitled to possession on the death of a proper liferenter shallbe deemed to have acquired all the assets forming part of the property at their marketvalue at death.

The disposal or termination of a proper liferent may qualify for private residence reliefunder s222 TCGA as it is an interest in land.