Legal background to trusts & estates: life tenant - an outline
A person who has a life interest is called a life tenant, or sometimes a tenant for life. A life tenant is entitled to the income of a fund, but not capital. The entitlement usually continues for life, but can be for a shorter period. For example a widow may have a life interest in her late husband’s estate, until she remarries.
On the death of a life tenant, the trust fund may vest in another beneficiary. A brief description is ‘to beneficiary A for life, with remainder to beneficiary B absolutely’. The trustees are deemed to have
- disposed of the trust property at market value, then
- re-acquired it as bare trustees for beneficiary B.
There is no charge to CGT, unless there is a clawback of held-over gains. Details are at CG36454.
When a life tenant dies, the trust funds may continue to be settled property. For example, there may be a further life interest. The trustees are treated as
- disposing of the settled property at the date of death, then
- re-acquiring it the market value on the date of death.
There is no charge to CGT, unless there is a claw-back of held-over gains. Details are at CG36450.