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HMRC internal manual

Trusts, Settlements and Estates Manual

From
HM Revenue & Customs
Updated
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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.