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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Interests in possession: introduction: death and trusts

Before 22 March 2006, for Inheritance Tax purposes, if a person has an interest inpossession in settled property and dies, the value of the settled property in which he orshe has the interest is treated as part of his or her property, and taxed accordingly.Therefore, where a person with such an interest dies, the treatment for Capital Gains Taxpurposes is similar to that where an individual dies. There is no charge on the death, andthe future computations are based on the value at death.

Certain situations are deemed to involve interests in possession for Inheritance Tax, inparticular a lease for life (IHTA84/S43 (3)) and certain discretionary trusts for disabledpeople (IHTA84/S89). These are not deemed to be interests in possession for Capital GainsTax.

Finance Act 2006 introduced radical changes to the treatment of settled property forInheritance Tax. Only certain kinds of interest in possession are treated as if thesettled property belonged to the deceased. These are summarized at CG36525 onwards.Further details may be found in IHTM.