When a property is bought with a life tenant, who is entitled to live in the property rent free, what are the tax implications following the life tenants death upon sale of the property?
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There are two issues here
1] IHT
The unencumbered value of the property will be deemed to be part of the life tenant's estate for IHT purposes, and a pro-rata share of the liability may fall on the owner of the freehold
2] CGT
The death has no impact for CGT purposes[ ie. there is no uplift to the value at the date of death], so that on the sale CGT at 18/28% would fall on the owner on the difference between cost and sale proceeds.
The term "life tenant" is somewhat ambiguous. If there is a trust of which the occupant is a life tenant, there can be an uplift for CGT to the value at the date of death, and PPR relief under TCGA s225 might be in point.