CGT on IIP trust investments

[rjhfandclf]

I have had a separate thread running concerning the interpretation of main property descent to step-grandchildren. I now have a different issue concerning CGT in relation to the investments held in the IIP trust concerned ...

The IIP trust was originally set up in 1986 from 50% of father’s estate to provide step-mother with a house, but the will allowed for any surplus to be invested for her lifetime benefit. She chose a smaller house and some income, but has now recently died (August 2017). The approximate current trust values are £200,000 in property, plus £130,000 in investments. The income from the investments was mandated direct to the widow.

The investments were for many years handled on a discretionary basis by a London broker, but one of the trustees took this over when he retired in 2009 – largely to avoid the considerable eating-in of fees into the small capital. The brokers were also very little interested in the portfolio as it was so small. The value at transfer was only around £65,000, having suffered the inevitable considerable reductions over the previous difficult years.

The trustees made annual tax returns, but in 2010, received a letter from HMRC stating that they did not require further tax returns (unless the usual relevant criteria changed). The income tax side of things never changed, but the portfolio has subsequently increased considerably - particularly recently. The trustees did make some changes to investments under their own management, but always tried to keep these within annual allowances. However, we are now not entirely sure that this does not need double-checking:

• There are now no records traceable from before 2009, when the holdings were transferred
• Contract notes are available online for all transactions from 2009 (I believe)
• No tax returns have been made since the 2010 HMRC letter
• We are worried that in some years the capital gains threshold might inadvertently have been exceeded, while in other years there were probably annual losses

We can hand the whole matter over to a tax advisor to check over, but if it is a matter of trawling through online records, then the trustees should have time to do this - at least in the first instance. A tax return could still be made for 2016-2017, and I guess one will be needed for the settlement of the trust this tax year.

Meanwhile any advice would be much appreciated. Thanks!

[maths]

On the death of the life tenant the assets of the trust in which the life tenant's interest subsisted are deemed for CGT purposes to have been sold and re-acquired by the trustees at their market value; but no chargeable capital gains is deemed to arise, and hence no CGT charge at this point.

The trustees then hold the trust assets on bare trust for the beneficiaries.

If there are a number of beneficiaries it would probably make sense for the trust assets to be assented to the beneficiaries who themselves make any subsequent sales thus mitigating any CGT charges.

[rjhfandclf]

Thanks maths - all helpful.

Due to a deed of variation by the two original beneficiaries (the two sons) in favour of their children, there are indeed now five beneficiaries, but this makes for a slightly more complicated distribution fraction for each as one son has three children and the other two - so we have 2 x 1/4 shares and 3 x 1/6 shares. Also, in these rather unnerving times, the trustees feel that they should crystallise the investments reasonably quickly 'just in case'. In this case I think that any risk of rapid capital gain post death valuation is quite low.