Property in Trust - Live rent free - Pay tax?

[PhilH]

Over 6 years ago my sister and I became trusties of my late grandmother trust / estate.
We (the trust) bought a house and our mother lives in it.

I have read various things in the press that because she is living rent free we might have to pay some kind of tax? I think this is due to the government trying to clamp down on trusts set up to avoid IHT.

DonÂ’t understand any of this and would really appreciate some advice.

[PhilH]

Will the solicitors who prepared the paperwork for the trust and hold the deads to our house be charging us anything? (We assume not!) but are going to find out.

[JsByrne]

Hi there

Due to new provisions introduced by the Government to come into force April 2005 income tax will be charged on transfers of property made by a will maker who then continues to retain a benefit from it - technically they have made a Gift with a Reservation of benefit.

On the facts you have provided your mother is not the person who made the transfer and therefore ther the gifts with reservation issue does not apply for IHT purposes.

Give me a shout if I can be of any more help.

[kirstie.williamson@a]

Hi

The solicitors who prepared the trust deed and arranged the conveyancing of the property are highly likely to make a charge for their services. I am not sure why you assume that it would be done for free. Are the solictors also trustees ?

Their fee should be settled from trust funds rather than by you or your sister personally. If this is not done then it can have adverse tax consequences. If the trust does not already have a bank account then it may be wise to open one to meet any payments which the trust is required to make - eg repairs to the property where your mother lives, insurance on the property etc etc.

Have you taken any advice from the solicitor on the duties and responsibilities of trustees generally ? If not then you probably should.


Hope this helps.

KW

[bob.fraser@towrylaw.]

The tax you are talking about is the Pre-Owned Assets tax. Under the circumstances that you have described, you mother will not be liable for this tax.

[Taxbar]

I think that your mothers situation needs careful consideration.
Is she a beneficiary of the will trust? Is the trust a discretionary or interest in possession trust? Is you mother a or one of the life tenants of the trust?

Only by understanding and analysing these elements can anyone give any meaningful advice on this scenario.

Daniel Feingold
STP
info@stratax.co.uk

[PhilH]

Thanks everyone.
This was the answer I was afterÂ….

“Due to new provisions introduced by the Government to come into force April 2005 income tax will be charged on transfers of property made by a will maker who then continues to retain a benefit from it - technically they have made a Gift with a Reservation of benefit.

On the facts you have provided your mother is not the person who made the transfer and therefore ther the gifts with reservation issue does not apply for IHT purposes.”

What happened was grandmother left some a shop in a trust.

It was very complicated and took us over 10 years from her death to eventually sell the shops.

Basically the solicitors and my uncle were made trustees of the original trust.
When my sister and me were 21 we eventually managed to become new trustees of a new trust. The shop was sold and a house was bought for my mother to live in.
Me and my sister are the only trustees of the trust.

Thanks again for your help.