Deed of variation - Grandchildren and CGT

[Ian Wright]

I am aware that if a deed of variation is carried out in favour of the grandchildren (minors) any interest received over £100 is taxable on the parent who gave up their right.

My question is, what about capital gains tax? Is it the same? Do I treat the gain as the parents or is the asset in some type of settlement which under trust rules would be taxed at 40%?

The scenario I am looking at is if the asset is transferred to the grandchild and then sold at a profit whilst the child is still a minor, what is the tax treatment of the gain?????

Any help would be appreciated.

Ian

[cta]

Assuming the grandparent's will left assets to their children, and they effected a dov in favour of their children (the grandchildren) the settlor of the trust for both Income Tax and Capital Gains tax is the parent and income and gains will need to be reported on their return.

If this is a discretionary trust, holdover relief may be available on the transfer of an asset out of the trust in favour of the grandchildren, who could then sell and use their own CGT exemption, and are likely to pay tax at a lower rate than the parent.

This is quite a complex area and one where you would be best to take paid advice on dealing with the trust. The reason for the dov I imagine is that altough the dov is not effective for IT and CGT, it will be for IHT, but this will depend on whether the trust is truly discretionary. Trustees need to meet regularly to decide on how income and capital is to be treated and must be seen, preferably through regular minutes, that they are exercising their discretion.

[colinefbarrett]

It was my understanding that if the DoV was executed correctly then the variation is retrospective to the date of death (ie the original beneficiary no longer comes into the equation - meaning that the income tax and parent/child issue should never arise).

[Peter D]

Why do you want to trigger DOV's. You mention grandparent's are you suggesting they both passed away in the last two years. What size of IHT problem have you got and what ytpe and amount of property asset is involved. Regards Peter

[Ian Wright]

Thank you for the responses so far. Right I will give the exact scenario.

Uncle dies leaving expensive flats to his niece. She would like to do a DOV so that the asset goes to herself, her husband and 2 minor children.

If they all sell in say two years, who pays CGT?

There is no trust, well at least not one that you can see immediatly.

My point is, has the parent who has put the DOV into operation in favour of her minor children made a settlement and if so how is it taxed?

I am sure this goes on all the time but I have never really looked at the true mechanics of the case.

A worthy debate I think!

Ian

[Peter D]

And the value of the flats and the Uncles estate value. You say Minor under 16 or 18 Regards Peter

[Ian Wright]

Estate is in excess of £1mil and this particular flat is worth about £300k. I say flat in that other nieces have inherited other flats and wish to DOV with their children too.!!!!

[Peter D]

'Minors' Property ownership, trusts and IR are complex issues for a 1M estate. You really need to make face to face representaion to a qualified professional IHT practitioner as if you get this wrong the costs can be enormous. Use the 'Find A Professional' on here and see if there is a local expert for you. You do realise that all parties must be agreed to qualify a DOV and the grandparents or grandparent must have passed away less than 2 years ago. Regards Peter