Ownership and subsequent disposal of property in trust

[PJJSPA]

Hello

This is my first post so I hope I've kept within the bounds and rules of the forum?

I have a few questions with regard to my Grandmother's property. I am about to retire from the Army and emigrate to Canada with my family. Hopefully you will be able to help me with some questions before I go.

Scenario:

In 2001 my widowed Grandmother (aged 80 at the time) purchased her council house with money provided to her by my Father. She then made a Declaration of Trust which basically reads as follows:

a. She paid 'X' amount for the property.
b. She is the name registered on the Title of the property.
c. My Father provided her the money on the understanding that he would acquire beneficial ownership of it.
d. She's taken legal advice and accepts that her property will increase in value.
e. She holds the property upon trust to my Father.

My Grandmother still lives in the property (rent free) to this day, however, in Sep 2009 my Father died after a very short battle with Cancer and his entire estate passed to my mother in a hastily prepared Will. My mother wanted me to be the subsequent beneficiary of the Trust so she had a Deed of Variation done to that effect.

Questions:

1. I'm about to buy a property in Canada and the Lawyer there has asked me if I have ever owned a property worldwide. I have never bought a property, however, as the vice beneficiary to my Grandmother's Trust I don't know if that makes me an owner or not?

2. I was told by my Mother's solicitor that upon my Father's death the Capital Gains liability on the Trust (from 2001 - 2009) died with him and that Capital Gains will now be calculated on any subsequent increases in value since the day of his death. Does that sound about right?

3. My Grandmother is nearly 91 and will no doubt pass away whilst I am living in Canada. I intend to get her to make a will before I go and I'll ensure it makes mention of the Trust. That said, is there any special process I'll need to go through in order to receive the property from the Trust (as the beneficiary) and subsequently sell it? She has very little belongings and only a small amount of money so I don't anticipate needing to apply for probate.

4. Finally, how would I go about settling any Capital Gains liability? Is the onus on me to contact the Tax Office and inform them that I've sold the property and the sale price?

Sorry it's a bit long winded, but thanks in advance for your help.

Pete

[PracticalTax]

Hi

As I understand it, a property was purchased which, although held in your grandmother's name, was funded by and beneficially owned by your father. When he died the property passed under his will to your mother, still held in your grandmother's name. Your mother entered into a deed of variation under which I assume the beneficial ownership of the property passed to you. So, as of today you are the beneficial owner, but your grandmother still holds the property legally in her name.

In terms of your questions:

1. If the above is correct (which would need to be clarified to be sure) then yes you do own a property (you could tell the canadian lawyer that you are the beneficial owner but not the legal owner).

2. This is correct. Your base cost is the value at the date of your father's death, and your capital gain will be calculated based on that. Bear in mind that if you leave the UK you fall outside the UK capital gains tax rules, provided you are non-resident for 5 complete tax years. You should check whether you will get taxed in Canada on the gain if/when the property is sold.

3. You need to ensure that you have the original declaration of trust and your fathers will and the deed of variation to show that she holds the property on your behalf. You could consider getting her to reaffirm that she holds the property on bare trust for you now, and keep that document with her Will so that her executors know that the property is not hers. If you wanted to you could get her to transfer the title in the property to your name now so that you didn't have to worry about it being in her name when she dies.

4. If you're not in the UK there will be no capital gains tax. If you're non-resident for 5 complete tax years then you avoid UK CGT altogether. If you did come back in the 5 years, or were UK resident when the property were sold then you would have to complete a tax return to disclose the sale of the property and calculate the gains etc.

Let me know if you need any help.

[Lee Young]

To supplement the above excellent answer, point 3, there would be no need for your grandmother's will to mention the trust as the trust already governs what happens to the property. The property is in fact not in your grandmother's estate so her will has no bearing upon it.

[PJJSPA]

First, may I start by saying thank you very much for your thorough response, it is most appreciated.

Hi

As I understand it, a property was purchased which, although held in your grandmother's name, was funded by and beneficially owned by your father. When he died the property passed under his will to your mother, still held in your grandmother's name. Your mother entered into a deed of variation under which I assume the beneficial ownership of the property passed to you. So, as of today you are the beneficial owner, but your grandmother still holds the property legally in her name.

You're pretty much spot on with that.

In terms of your questions:

1. If the above is correct (which would need to be clarified to be sure) then yes you do own a property (you could tell the canadian lawyer that you are the beneficial owner but not the legal owner).

Oh, I see, I thought the Trust was the 'Owner'. Does that mean that technically I could sell the property whenever I wanted to? I thought it wouldn't be mine until my Grandmother died. My Mother promised my Father on his death bed that she would look after my Grandmother if she became infirm. I was worried that her property would be sat empty if that happened, but from what you're saying I could sell it then if needed. When it does eventually get sold will it matter that it's my Grandmother's name on the deeds and not mine?

2. This is correct. Your base cost is the value at the date of your father's death, and your capital gain will be calculated based on that. Bear in mind that if you leave the UK you fall outside the UK capital gains tax rules, provided you are non-resident for 5 complete tax years. You should check whether you will get taxed in Canada on the gain if/when the property is sold.

I think I will get taxed on it in Canada but I'll find out for sure when I'm there. I know I'll have to submit an annual tax return so I'll need to speak to somebody to help with that anyway.

3. You need to ensure that you have the original declaration of trust and your fathers will and the deed of variation to show that she holds the property on your behalf. You could consider getting her to reaffirm that she holds the property on bare trust for you now, and keep that document with her Will so that her executors know that the property is not hers. If you wanted to you could get her to transfer the title in the property to your name now so that you didn't have to worry about it being in her name when she dies.

The originals are held with the solicitor but I do have scanned copies in pdf that I have stored on my computer.

You mention 'Bare Trust', is that what we have. All it says on the front is 'Declaration of Trust', I was reading about Bare Trusts and wondered? Here's a link to a copy of what we have (names blanked out); what do you think?

http://dl.dropbox.com/u/524736/Declaration%20of%20Trust.jpg

When the solicitor drew up the Deed of Variation he also did an Assent (whatever that is)? It's got the following written on it at the bottom (and my Grandmother's signed it) so I think we've got that covered.

"I Xxxx (my Grandmother) consent to all the interest of the Testator (my Father) in the Declaration of Trust vesting in Xxxx (Me) and I declare that I now hold the property comprised in the Declaration of Trust upon trust for the said Xxxx (Me) absolute."

4. If you're not in the UK there will be no capital gains tax. If you're non-resident for 5 complete tax years then you avoid UK CGT altogether. If you did come back in the 5 years, or were UK resident when the property were sold then you would have to complete a tax return to disclose the sale of the property and calculate the gains etc.

I'm joining the Canadian Forces (CF) and I'm mandated to become a Canadian Citizen within 4-years so we have no intention of coming back.

Let me know if you need any help.

You've been a great help already.