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Where Taxpayers and Advisers Meet

Capital gains tax on disposal through declaration of trust

Deltagreen
Posts: 3
Joined: Mon Mar 12, 2018 7:35 am

Capital gains tax on disposal through declaration of trust

Postby Deltagreen » Mon Mar 12, 2018 7:44 am

My question relates to a buy to let property owned by my parents since 1994. I am planning to move into this property and buy it from them in a year's time.
They would like to transfer beneficial ownership to me via a declaration of trust and I would like to know if this counts as a disposal for cgt purposes by them. They are non UK residents so should only be liable for cgt from 2015 although they may have to pay cgt in France.

AGoodman
Posts: 567
Joined: Fri May 16, 2014 3:47 pm

Re: Capital gains tax on disposal through declaration of trust

Postby AGoodman » Mon Mar 12, 2018 12:33 pm

Yes, the UK tax system looks through legal ownership to beneficial so it is a disposal.

You would need to consider NRCGT, SDLT and (if sold at a discount), possibly IHT.

Make sure your parents don't get into a trap paying UK tax now and French tax later (when legal ownership transfers) without being able to credit one against the other.

(and don't forget the NRCGT 30 day deadline)

Deltagreen
Posts: 3
Joined: Mon Mar 12, 2018 7:35 am

Re: Capital gains tax on disposal through declaration of trust

Postby Deltagreen » Mon Mar 12, 2018 4:40 pm

Thanks for your reply.
I am quite confused about this...
You seem to imply that the declaration of Trust would trigger CGT in the UK, but not in France until the title deeds were changed with Land Registry. It doesn't really make sense for the CGT to be payable at different times?

CGT in the UK would not be a problem anyway as they've owned the property for 24 years and are non resident so would be exempt until 2105. The CGT payable from 2015 would be within the annual allowance so nothing to pay.
In France they would have to pay CGT it seems, but as it is tapered there they would get a discount. It would be better if it could all be sorted out when the DOT was done.

I realise that transferring the whole of the title into my name may trigger stamp duty and yes they will be selling for less than the market value, so I assume the portion I am buying will be subject to SDLT, and the gift element potentially subject to IHT. This may be further complicated by the fact that the estate will be probably be dealt with under French Inheritance laws.

It feels very complicated....

AGoodman
Posts: 567
Joined: Fri May 16, 2014 3:47 pm

Re: Capital gains tax on disposal through declaration of trust

Postby AGoodman » Tue Mar 13, 2018 11:20 am

Exactly, the UK system looks at beneficial ownership but French law does not have a concept of trusts so I do not know what effect a declaration of trust would have under French tax law. It is possible that French law might ignore it (but, to reiterate, I do not know)

Also bear in mind that SDLT is also based on beneficial ownership. Your parents do not need to transfer legal registered title to you in order for SDLT to be an issue. SDLT is charged on the sum paid.

You have not mentioned the purposes of the declaration of trust. If you are planning to transfer legal title anyway then it is an unnecessary step. If not, you could have a lot of extra work when the property is sold or a parent dies (such as persuading the French tax authorities that the property was not theirs for wealth / inheritance tax).

Deltagreen
Posts: 3
Joined: Mon Mar 12, 2018 7:35 am

Re: Capital gains tax on disposal through declaration of trust

Postby Deltagreen » Wed Mar 14, 2018 11:11 am

Thanks for that. I'm not entirely sure why they would prefer to do it via a trust, but their solicitor seems to think it was a good idea. I'm not so sure. Especially as the UK/French legal situation regarding trusts seems quite confusing. I will have to do more research and maybe try to persuade them to change the title deeds so we do it all at once. Thanks again for your advice.


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