3(1)A person beneficially entitled to an interest in possession in settled property shall be treated as beneficially entitled to the property in which the interest subsists.
(2)Where the person entitled to the interest is entitled to part only of the income (if any) of the property, the interest shall be taken to subsist in such part only of the property as bears to the whole thereof the same proportion as the part of the income to which he is entitled bears to the whole of the income.
(3)Where the part of the income of any property to which a person is entitled is a specified amount (or the whole less a specified amount) in any period, his interest in the property shall be taken, subject to sub-paragraph (4) below, to subsist in such part (or in the whole less such part) of the property as produces that amount in that period.
(4)The Treasury may from time to time by order made by statutory instrument prescribe a higher and a lower rate for the purposes of this paragraph ; and where tax is chargeable in accordance with sub-paragraph (3) above by reference to the value of the part of a property which produces a specified amount or by reference to the value of the remainder (but not where chargeable transfers are made simultaneously and tax is chargeable by reference to the value of that part as well as by reference to the value of the remainder) the value of the part producing that specified amount—
(a)shall, if tax is chargeable by reference to the value of that part, be taken to be not less than it would be if the property produced income at the higher rate so prescribed ; and
(b)shall, if tax is chargeable by reference to the value of the remainder, be taken to be not more than it would be if the property produced income at the lower rate so prescribed ;
but the value to be taken by virtue of paragraph (a) above as the value of part of a property shall not exceed the value of the whole of the property.
(5)Where the person entitled to the interest is not entitled to any income of the property but is entitled, jointly or in common with one or more other persons, to the use and enjoyment of the property, his interest shall be taken to subsist in such part of the property as corresponds to the proportion which the annual value of his interest bears to the aggregate of the annual values of his interest and that or those of the other or others.
(6)Where, under paragraph 1(3) of this Schedule, a lease of property is to be treated as a settlement, the lessee's interest in the property shall be taken to subsist in the whole of the property less such part of it as corresponds to the proportion which the value of the lessor's interest (as determined under Schedule 10 to this Act) bears to the value of the property.
(7)A statutory instrument made under this paragraph shall be subject to annulment in pursuance of a resolution of the House of Commons.