In specie transfers and CGT triggers

[robertthetrustee]

Good morning all, I'm a newbie here so please be gentle!

I'm a trustee for a Personal Injury Trust set up for a family member after he had a road accident some years ago. This is a Bare Trust, so any income or CGT is treated as his personal money and is declared on his tax return in the usual way.

Some of the money in the Trust has been invested (on the advice of an IFA) for several years with an investment manager. The Trust is the beneficial owner of the shares, bonds etc held in the portfolio. The investment manager's performance over the years has been pedestrian (though not disastrous) in terms of total returns, and this has not been offset by any benefit of protection from market volatility (which was the trade-off against performance that we expected for a 'lower-risk' portfolio). So we are thinking of changing manager or even taking the funds under direct control on a suitable platform (eg Hargreaves Lansdown have a specific service for Trusts).

The issue is that if we liquidate the existing portfolio and transfer the cash to the new manager, this will trigger a CGT liability - quite a substantial one given the time the funds have been accumulating, the tax bill would be well into 5 figures. I had hoped that if the investment manager and the receiving party were able to transfer the holdings in specie, so that the beneficial ownership remained the same throughout, then a CGT event would not occur and no liability would arise. However I can't find anything on the web about this, including on this site.

I called HMRC to ask the specific question this morning, always found them to be helpful and willing, but strangely they were unable to give definitive advice. The Tax Inspector called me back, after doing some research and consulting in the office, to say that the consensus in the office was that the process would still be regarded as a disposal and CGT would indeed be liable even if the transfer was in specie. However he did say that this was a consensus opinion and not a ruling.

This seems very odd to me, since there's no change of ownership. I should add that I'm also a Trustee for a pension scheme and I know that the scheme's holdings can be transferred in specie across managers without tax (but that may be because of the tax treatment of pension schemes, of course)

Does anyone have experience with this and be able to advise?

Many thanks in anticipation

Robert

[pawncob]

I think it depends very much on the status of the investment manager.
If it was in an ISA, then a change of manager and a transfer in specie to another manager is allowed.
As the trust is the beneficial owner of the shares, then I can't see why a change of "manager" and a transfer in specie would be deemed to be a disposal , but it would depend on whose name is on the share certificate.

[robertthetrustee]

Thanks for the quick response.

No, the funds are not in an ISA. (If they were

Without naming names, the investment manager is one of the larger wealth management companies and listed on the FTSE250. I was told at the time of initial investment that the shares are held by a custodian company with the Trust named as the beneficial owner. Whether that means the Trust is actually named on the certificate is another matter of course.

I expect that, because this is a 'standard' portfolio (ie not individually tailored to the client, but suitable for any client who wants that risk/return profile), then the IM will manage all subscribing clients on a collective basis, even though the account is an individual one and the shares are ringfenced by the custodian for each individual client. If that makes sense!

I guess I will have to ask them directly about the name on the certificates. Been reluctant to do this so far because I want to form my own view of the pros and cons before getting the spiel from a salesman/customer services. And it may be that they don't offer in specie transfers as a service anyway.

[robertthetrustee]

....sorry, omitted from 2nd para..

If they were, there would be no issue cashing in anyway as long as the money stayed in an ISA wrapper

[maths]

I don't understand the problem.

The beneficiary under the bare trust holds the investments as beneficial owner.

The managers are simply advisers and do not hold any investments beneficially but as agent/nominee for the bare trust beneficiary.

Changing managers will not precipitate any CGT charges for the bare trust beneficiary; such beneficiary will both before and after the transfer to new managers remain beneficial owner.

All a transfer requires is a change in the registered owners of the various investments which are probably held in a nominee company of the managers.

[robertthetrustee]

Thanks Maths

That's what I had also thought, but HMRC are advising differently. Hence the query to this forum to see if anyone had come across a similar situation.

Can you (or anyone else out there) point me towards any tax manual, regulation or case law that they might accept?