Interest in part of a fund: introduction
Where a beneficiary has a qualifying interest in possession in part of a fund the value for tax is the proportion of capital that is reflected by his share of the income (if any) over the whole income produced by the fund - IHTA84/S50 (1) and (2).
Where the beneficiary is not entitled to any income of the property but is entitled, jointly or in common with others, to the use and enjoyment of the property, his taxable interest shall be taken to subsist in such part of the property as corresponds to the proportion which the annual value of his interest bears to the total of his interest and all other interests in the property - S50 (5).
A distinction needs to be drawn between:
- the case where an interest, which exists in part of the settlement, comes to an end and
- the termination of part of an interest in the whole or part of the property.
In the first case, S50(1), (2) and (5) apply, as appropriate, so that the property to be valued is the share itself, with any appropriate discount for joint ownership.
But in the second case S52 (4)(a) provides that ‘the tax chargeable under this section on the coming to an end of part of an interest shall be charged as if the value of the property (or part) in which the interest subsisted were a corresponding part of the whole.’
(1) A beneficiary has a qualifying interest in possession in a half share of realty Greenacre, with an entirety value of £400,000. He terminates his interest in the half share. The value to be taxed is a half share with a discount for joint ownership thus -
£400,000 less (say) 10% = £360,000 x 50% = £180,000 taxable.
(2) The beneficiary as above terminates half of his interest in the share
The result is - £180,000 x 50% = £90,000 taxable. A further joint property discount is not allowable.
S52 (4) does not apply to claims on death, as the whole of the beneficiary’s qualifying interest (whatever proportion of the whole it might be) must terminate on death.