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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Death of person with interest in possession: right to part of income

TCGA92/S72 (1)

Section 72(1) provides that the trustees are deemed to dispose of the whole or acorresponding part of each asset forming part of the settled property. The last threelines of Section 72(1) provide that an interest which is a right to part of the income ofsettled property is treated as an interest in the `corresponding part’ of the settledproperty, for example, if the interest was one quarter of the income, then one quarter ofeach asset would be deemed to have been disposed of and reacquired by the trustee atmarket value. On a subsequent disposal, the trustee would have for each asset a composite`cost’ consisting of three quarters of the original cost plus one quarter of the marketvalue at the date of the deemed disposal and reacquisition.

When this provision was introduced in 1971 it was considered that Section 72(5), seeCG36470 above, only applied to segregated funds. Following Pexton v Bell 51TC457 it seemsthat this provision is only required in cases where there is a person with an annuity or aguaranteed minimum income from the settled property, for example, if A and B are eachentitled to one-half of the income, but A is entitled to at least £5,000 which will comeout of B’s share if necessary.

From 22 March 2006 this only applies to certain kinds of interest in possession, seeCG36525.