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HMRC internal manual

Capital Gains Manual

Death and Personal Representatives: Non-trust life interests: 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 the income from particular property is to be paid to a person, the liferenter, for a specified period, generally his or her lifetime. At the end of the period the property will generally 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 the interest is known as an improper liferent, the property is vested in trustees who administer the property and pay the income to the liferenter. In general the trustees have the power to sell the property in question and replace it by other property, whether land and 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 the liferenter. In this situation he or she is a proper liferenter. A proper liferenter cannot dispose of a greater title than his own. He cannot dispose of the property in his will. On his death the property passes to the fiar.

Where property in Scotland passes to a person for life under a will, and there is no suggestion 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 S63 provides that the person entitled to possession on the death of a proper liferenter shall be deemed to have acquired all the assets forming part of the property at their market value at death.

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