Taxes Consolidation Act 1997 section 577A

Relinquishing of a life interest by the person entitled

Section 577A provides relief from capital gains tax for trustees of settled property where a life interest holder relinquishes that life interest, by extending retirement relief to the trustees as if the life interest holder had owned the property outright.

• Where a life interest is relinquished and another beneficiary becomes absolutely entitled to the settled property, the trustees are treated as having disposed of and immediately reacquired the assets at market value under section 576(1).
• The trustees are entitled to the same retirement relief under sections 598 and 599 as the life interest holder would have received if that person had owned the assets absolutely from the commencement of the life interest throughout the life interest period.
• Any enhancement expenditure incurred by the trustees on the assets during the life interest period is treated as if it had been incurred by the life interest holder.
• The effect is that the deemed chargeable gain arising to the trustees over the life interest period may be reduced or eliminated by retirement relief or relief for disposals of a business or farm within the family.