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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Disposal of interests in settlements: introduction

Suppose that in this situation A and B agreed to bring the trust to an end and share the assets between themselves. This is quite a common situation. Without any special provision the Capital Gains Tax consequences would be

  • Trustees: A and B would become absolutely entitled, see CG37000+, to the settled property and therefore there would be a deemed disposal at market value.
  • A: his life interest would be terminated. Unless rebasing applied his allowable expenditure would be nil, under TCGA92/S17 (2), because he gave no consideration for his interest and there was no corresponding disposal. He would therefore be charged on the full value of what he became entitled to receive. If rebasing applied, the value at 31 March 1982 would be substantially reduced, because a life interest is a wasting asset, see CG38020 - CG38022.
  • B: his interest in remainder would be terminated. His CGT position would be similar to that of A, except that his interest is not a wasting asset.