Trust Property used by trustees after legal title has passed

by **windrush** on Fri Mar 12, 2010 10:24 am

Can someone please advise on the following:

Property was bought in 1980 on trust for grandchildren (then minors). Legal title was passed to two of the grandchildren when they reached 18 but grandparents have continued to use it and pay all outgoings and costs of maintenance etc as grandchildren do not want to live in the property permanently. What please are the implications for grandparents who continue to use and pay for all outgoings etc - could this fall within the GROB rules for inheritance tax purposes or the pre-owned asset rules if grandparents continue to use the property and treat it as their own?

by **Lee Young** on Fri Mar 12, 2010 10:54 am

The gift would appear to pre-date both the ambit of the GROB rules and indeed POAT. I would tentatively suggest that for the grandparents it should be OK, though there will be a hefty CGT bill for the grandchildren at some point.

by **maths** on Fri Mar 12, 2010 11:31 am

I am not sure of the nature of the trust which was created, possibly a bare trust?

If a bare trust I agree with Lee's comments.

If not, s225 TCGA 1992 may be of help re and CGT issues.

Lee?

by **windrush** on Fri Mar 12, 2010 11:41 am

Thanks very much, the transfer was made in October 2003 - does that change your opinion?

by **windrush** on Fri Mar 12, 2010 11:49 am

Sorry, I may be confusing you. The property was bought in 1980 by the grandparents and legal title was transferred to the grandchildren in 2003. It is and always has been used as a holiday home so the Grandparents have a second home which is their main residence. However, since transferring the property in 2003 they have continued to use it and for all intents and purposes as the owners paying all bills and other outgoings as well as dealing with maintenance. The children are not interested in it and the Grandparents are concerned that the trust arrangement - their tax position may be compromised either by their continued use and financial involvement meaning that the transfer without consideration in 2003 was a GROB or that because they continue to use the property that the pre-owned asset rules may catch them.

by **Lee Young** on Fri Mar 12, 2010 12:10 pm

If the transfer to the grandchildren was made in 2003 then it will be a GROB and therefore the property will remain in the estates of the grandparetns for IHT purposes UNLESS the grandparents pay full market rent (for their periods of occucpation/use/enjoyment) to the grandchildren.

by **maths** on Fri Mar 12, 2010 1:01 pm

Somewhat different to the original question posed.

On the transfer of legal title to the children either the beneficial title remained with grandparents or it was also transferred to children.

If the former, then property remains in grandparent's estate for IHT.

If the latter, same IHT consequence albeit now due to gift with reservation.

If the former, then future CGT that of grandparents.

If the latter, at the date of the transfer of beneficial title grandparents precipitated CGT liability for them. Future CGT liabiity becomes that of the children.

(Re CGT assumed property never main residence of anyone).

by **windrush** on Fri Mar 12, 2010 4:32 pm

Thank you, so in summary, if the grandparents bought a second home with their money but a trust was established for their then minor grandchildren and both legal and beneficial interest to the property was transferred in 2003 but for all intents and purposes, the grandparents continue to treat it as their property spending time there - it will be a GROB? What if the grandparents pay for all outgoings (i.e. utilities, insuring the property etc) does that substitute for having to pay market rent? And is it the case that it will in anyevent be a GROB for IHT purposes and fall within the pre-owned asset rules for continued use? Thank you

by **Lee Young** on Fri Mar 12, 2010 5:33 pm

From what you have described it is a GROB. If it is a GROB it cant be subject to POAT - the two are mutually exclusive.

Paying for the outgoings arguably suggests they considered it still theirs and no this would not 100% count as market rent - you would need to convince the Revenue and I suspect strongly if convincing is needed then they will reject the arguments.