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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Death of person with interest in possession: no separate funds

TCGA92/S72 (5)

Segregation of the settled property into separate funds is not essential to theapplication of Section 72(5). See Pexton v Bell, 51TC457, a case which concerned thepre-1971 provisions under which there was a charge when a life interest terminated, on thewhole of the property subject to the life interest. The Court held that the word `part’ inthe expression `part of the settled property’ should be construed as including anundivided share of the whole of the settled property, even though no division into fundshad occurred.

For example, if there are two life tenants entitled to the income of a trust fund in equalshares, Section 72(5) requires each life tenant to be treated for the purposes of Section72(1) as having the exclusive life interest in a notional fund comprising half of eachasset held by the trustees, irrespective of the nature of the assets, provided thatneither life tenant has any right of recourse to the share of the other.

CG36474 applies in appropriate cases to determine the composition of the notional fund.