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Where Taxpayers and Advisers Meet

CGT on My Parents' Trust

Posts: 2
Joined: Wed Oct 11, 2017 9:17 pm

CGT on My Parents' Trust

Postby Mystified » Wed Oct 11, 2017 10:53 pm

Hi Guys
In 1994 my parents put their home into a Discretionary Trust, the beneficiaries being family, the trustees were their sons. We were told that no action was required by us until they died. They then lived in their home as if it was their own. So the trust was dormant, it was not registered with HMRC and had no income.
First my mother died, then my father moved out last October and recently died. We sold the house in April, putting the proceeds into the trust account. We now wish to distribute the proceeds.
Because my parents had full beneficial use of their home at no cost, HMRC deemed that the house was part of the estate and liable to IHT. Normal rules using my parents tax thresholds would apply to the calculation. We have no problem with this.
HMRC have said that the Trust could be liable for CGT. I've had two contradictory conversations, one - no CGT payable, two - CGT payable but Private Residence Relief will apply. HMRC's website says that 'It must be the main residence for someone the trust says can live there.' My parents weren't entitled to live there, so this would not apply. So:
1. Is CGT payable as well as IHT?
2. If so, over what period? How do I calculate it?

Your help to demystify will be gratefully received.

Posts: 359
Joined: Fri May 16, 2014 3:47 pm

Re: CGT on My Parents' Trust

Postby AGoodman » Thu Oct 12, 2017 11:40 am

1. I'm afraid so. If they were not beneficiaries then PPR will not be available so the trustees will be liable to CGT on the sale of the house.
2. The gain will be the difference between the sale price and the market value when it was transferred into trust. You can make deductions for the legal fees of the transfers and any capital works carried out in the meantime.

Unless there are wider facts, this does sound like classic negligence/mis-selling - albeit a difficult one to litigate due to the time that has passed. Even in 1994 I cannot think of any benefits to doing this - the reservation of benefit rules which meant IHT was payable have been around since 1986 and the CGT rules since 1992 (and probably before that). Had your parents simply kept the house it would have benefitted from a tax free uplift on death - preventing any CGT on the sale.

Posts: 7283
Joined: Wed Aug 06, 2008 3:25 pm

Re: CGT on My Parents' Trust

Postby maths » Thu Oct 12, 2017 12:13 pm

TCGA 1992 s225 relief is available if one or more beneficiaries of the trust are entitled to occupy the property under the terms of the trust.

As AG suggests presumably, however, the parents were not within the class of beneficiaries?

Posts: 2
Joined: Wed Oct 11, 2017 9:17 pm

Re: CGT on My Parents' Trust

Postby Mystified » Thu Oct 12, 2017 3:07 pm

Thanks AGoodman and maths for your quick replies.
I suspected as much.
No, my parents weren't beneficiaries.

The trust was originally set up 4 years earlier because of a problem daughter (long dead) There is a letter suggesting how to put money ino the trust either during their lifetime or by their respective wills.
Further on, the same letter talks about a tax planning scheme involving giving one half of the house away (if tenants in common) direct to the children but in the Will permit the survivor to live in the whole house etc. I don't know why the house was transferred into the trust. I suspect my Dad as being the culprit as he was extreme at not listening and taking advice. If I had suggested to him that he should pay rent to stay in 'his own home' I would've been disowned! In later life, he hated the fact that he couldn't put his home in his will (he did anyway!) and couldn't have it back. I think litigation is doomed to fail, but will consult! The solicitor has long ago retired and the practice closed!

The 3 of us stand to lose £91K plus another £40K because the new Residence Nil Rate Band doesn't apply to homes in discretionary trusts!

I think that this is a lesson in how NOT to put your home in a trust!

One last question - Once the CGT is paid will the beneficiaries have to pay any taxes on the money they receive?
Thanks (in sorrow!)

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