settlor interested trusts and cgt

by **Paula Henderson** on Fri Mar 18, 2011 10:34 am

Is it correct to say that any gains which are made on a settlor interested trust are assessable on the settlor and there is no annual exemption available to the trustees?
In this case does a settlor interested trust also include minor children of the settlor.
If it does not include minor children of the settlor does that mean that a parent can set up a trust for a minor child and get an annual exemption?

by **maths** on Fri Mar 18, 2011 4:58 pm

Is it correct to say that any gains which are made on a settlor interested trust are assessable on the settlor and there is no annual exemption available to the trustees?

No. The attribution of trust capital gains to the settlor of a settlor interested were abolished 6.4.08 for UK resident trusts.

by **Paula Henderson** on Mon Mar 21, 2011 12:55 pm

Thanks maths. So do settlor interested trusts get an annual exemption?

by **maths** on Mon Mar 21, 2011 2:05 pm

Post 6.4.08, as the settlor interested provisions are inapplicable,trustees are entitled to an annual exemption of 50% of that applicable to individuals (or less if other settlor created trusts).

by **Anthony Nixon** on Tue Mar 22, 2011 2:51 pm

Interestingly, this also provides an opportunity to get an extra half annual CGT exemption in a perfectly legal way.

Suppose you are both the settlor and a beneficiary of a trust – perhaps a trust you have set up by varying an inheritance from a parent into a trust (one of the best opportunities for IHT planning available to many of us).

Suppose the trust has 15,000 shares in X Ltd, which your investment adviser has recommended you to sell, realising a gain of £15,000. You want the proceeds to fund a new car/a world cruise/a child’s wedding etc.

If, before the sale, the trustees transfer 10,000 of the shares out of the trust to you, and you and trustees elect to hold over the gain, you can ensure that you realise a £10,000 gain personally (within your £10,100 annual exemption) and that the trust realises the other £5,000 (within the trust’s £5,050 exemption).

No CGT to pay.

I am fairly certain that the reason the rules changed in 2008, as Maths describes, was to prevent trusts being able to get the settlor's personal exemption of £10,100, which was the effect of the old rules. As so often, an attempt to close a loophole has just widened another one.

Anthony Nixon CTA TEP Solicitor
Partner, Thomas Eggar LLP, Southampton and Chichester
anthony.nixon@thomaseggar.com
023 8083 1224

by **Paula Henderson** on Tue Mar 22, 2011 3:40 pm

Thanks for these replies. I did a lot of trusts a few years ago and now find myself having to refamiliarise myself as I will be recieving a chunk of work that will include trusts.
I do know that a few years ago settlor interested trusts did not have an annual exemption Anthony, as well as that, s 169B, 169C and 169F prevents gift releif being claimed on assets transferred into settlor interested trusts.