Taxes Consolidation Act 1997 section 577

Termination of life interest on death of person entitled

Section 577 sets out the capital gains tax treatment of settled property on the termination of a life interest, including the definition of life interest, the exemption from charge on death, and the deferral of gains on heritage property.

• A life interest includes a right to trust income or use of trust property for life, but excludes discretionary interests and most annuities; an annuity payable from irrevocably appropriated trust funds is treated as a life interest under a separate settlement.
• Where a beneficiary becomes absolutely entitled to trust assets on the death of a life interest holder, no chargeable gain or allowable loss arises and the assets are treated as reacquired at market value at the date of death.
• Where a life interest in possession ceases but the property remains settled, the trustee is deemed to have disposed of and immediately reacquired the property at market value, potentially giving rise to a chargeable gain or allowable loss.
• Heritage property exempt from inheritance tax under section 77 of the Capital Acquisitions Tax Consolidation Act 2003 is excluded from the deemed disposal on termination of a life interest; the deferred gain is deemed to accrue in the year the heritage exemption ceases to apply.