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Life interest

05 October 2006
Issue: 4078 / Categories: Forum & Feedback
Our client, Mr G, died intestate in 1971, leaving a spouse, J, and an adult child. J is considering giving up part of her life interest due to the proposed change in use of some of the assets from business to non-business use for capital gains tax purposes.

I understand that the estate duty surviving spouse exemption may apply making any lifetime transfer pointless as no inheritance tax would be payable on the death of J.
Readers' comments are invited on how to establish whether the exemption applies and the meaning of 'competent to dispose' in relation to life interests (FA 1894 s 22(2)).
Query T16 888 — Unsettled.

Reply by Digby Bew:

In the first instance Unsettled could usefully refer to the flowchart at HMRC's Inheritance Tax Manual IHTM04342 to determine the possible application of the estate duty surviving spouse exemption.
The exemption (at IHTA 1984 Sch 6 para 2) exists to provide relief against the double charge to tax that would otherwise arise from the changes made to the operation of spouse relief in 1974 following the introduction of capital transfer tax. Prior to 1974 estate duty...

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