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HMRC internal manual

Capital Gains Manual

Death of person with interest in possession: part of settled property

In strictness it could be said the `corresponding part’ in an undivided fund is a fractionof each asset (in the example in CG36476, one quarter) remaining in the fund. This couldlead to an element of mismatching. Suppose that an interest in possession in one quarterof an undivided fund terminates on the death of the person with the interest, in a casewhere there is no immediate deemed disposal under Section 71 because of the right ofappropriation, see CG37530. In this situation someone will become absolutely entitled toassets representing one quarter of the value of the fund, but only when they areappropriated to him or her. Section 71 (1) would bite on the actual asset leaving thefund, whilst Section 72(1) would only have applied to one quarter of that asset. It isaccepted that the trustees have a reasonable time (see CG36481) in which to make theirappropriation and have the `corresponding part’ regarded as those assets actually leavingthe trust fund and going to the ultimate beneficiary. Section 71 (1) applies to these, butthe gain is fully relieved by Section 73(1). Section 72(1) does not apply since none ofthe `corresponding part’ of the assets identified in this way remains settled property.

There is an example in the next paragraph.

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