A&M Trust with Capital Losses

[250]

Healthy widowed father has c£1m shares, virtually all 'gain'. No other realisable assets. He set up a trust for grandchildren a number of years ago, which, due to investment in splits, has a c£40k Capital loss. The majority of the remaining capital has been used to prepay school fees.

Is there any clever way to utilise the loss, as he could only fund further cash injections into the trust by selling shares and paying Mr Brown virtually 40% of the proceeds.

Any suggestions would be appreciated.

[maths]

If from 6th April 2008 the trust, which prior thereto qualified as an A & M trust (?), falls into the relevant property regime then transfers of shares into the trust should qualify for CGT hold-over relief.

Once the shares are in the trust having precipitated no CGT on transfer, then the shares could be sold and any gain made offset against the trust's capital losses.

Trust are a tax nightmare and given the numbers involved strongy suggest specific tax advice be taken.

No good solving one tax problem but precipitating another.

[250]

maths

Thanks for this. Your suggestion is just what I needed to see!

The A&M trust was set up just over 10 years ago with c£100k for beneficiaries once they reach 21. There is c£10k in the trust at present.

Is the following broadly correct?

1) I believe the initial £100k is now irrelevant for IHT purposes (7 year PET rules)

2) If father transferred shares at market value of say £50k, which cost say £10k into the trust, they fall under "relevant property" rules, and will automatically be eligible for hold-over relief under Section 260(2)(a) Taxation of Chargeable Gains Act 1992 (TCGA);

These shares could then immediately be sold utilising the capital losses and the whole sum distributed accordingly.

3) The £50k transfer starts the '7 year' IHT clock again, but would not be subject to "entry tax", "periodic tax" or "exit charges" as the transaction is below the IHT threashold.

4) If this does not happen before 6 April 2008, then 21 needs to be changed to 18 for current IHT treatment to continue

Mank thanks for your views

[250]

maths

in addition...

I understand from HMCE that under the current legislation, the transfer and subsequent sale (point 2 above) could take place today, and does not have to wait until 08/04/08.

Is this correct?

[maths]

The taxation of trusts is complex; even more so post FA 2006.

Generally, adding property to existing relevant property settlements (as i mentioned above for CGT) can be prejudicial from an IHT perspective.

I strongly suggest you take professional advice which will enable all tax consequences to be considered.