This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

Bare trust creation and CGT hold over relief

HandySparrow
Posts:1
Joined:Thu Mar 15, 2018 2:56 pm
Bare trust creation and CGT hold over relief

Postby HandySparrow » Thu Mar 15, 2018 3:34 pm

Tied myself up in knots here. Grandmother is a director and >5% shareholder of unlisted (family owned) company. She wishes to gift her shares to a bare trust (express trust from written declaration of trust) with her grandson (a minor) as sole beneficiary (and, by default, herself as trustee).

As I understand it, a CGT liability arises as there is a transfer of beneficial ownership. Grandmother, I believe, qualifies for hold over relief on CGT so wishes to establish the claim with HMRC.
(1) Is CGT liability seen as transferring to the trust or the beneficiary at this point?

(2) On HMRC CGT holdover relief claim form, who/what is to be listed as transferee? Is it to be the grandson as the new beneficiary, who is a minor, or the unnamed bare trust? A valuation of the gift is required which would normally require an agreement of a sensible value between transferor and transferee, with signatures. So what happens with that when the trustee is the transferor and the transferee is the trust (where beneficiary is a minor)?

(3) Is this a valid procedure? If not, what should grandmother be doing?

(4) Am I right in assuming that, for IHT purposes, the shares leave grandmother's estate at the time this bare trust is established (and usual 7yr rule applies from then)?

Thank you.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Bare trust creation and CGT hold over relief

Postby maths » Sat Mar 17, 2018 9:17 pm

1) Is CGT liability seen as transferring to the trust or the beneficiary at this point?
It is the beneficiary of the bare trust that has the beneficial interest in the asset transferred not the bare trustee.
(2) On HMRC CGT holdover relief claim form, who/what is to be listed as transferee? Is it to be the grandson as the new beneficiary, who is a minor, or the unnamed bare trust? A valuation of the gift is required which would normally require an agreement of a sensible value between transferor and transferee, with signatures.
Suggest transferee be put as the trustee's name/address as the beneficiary is a minor and a note made to the effect that the trustee is a bare trust.

The claim form deals with the position with respect to valuation.
So what happens with that when the trustee is the transferor and the transferee is the trust (where beneficiary is a minor)?
Doesn't make sense.No CGT arises of bare trustee transfers asset to beneficiary on attaining age 18.
(4) Am I right in assuming that, for IHT purposes, the shares leave grandmother's estate at the time this bare trust is established (and usual 7yr rule applies from then)?
Correct.

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Bare trust creation and CGT hold over relief

Postby AGoodman » Mon Mar 19, 2018 12:05 pm

Also bear in mind that if the company is trading, the shares may well benefit from 100% business property relief so no IHT on death. This will still apply after a gift provided the company still qualifies and the trust/child retain the shares.

If the shares are standing at a large gain, there may be a benefit to grandmother retaining them and leaving to them to the child in her will. They would then benefit from a tax free uplift in base cost. Alternatively, ER may be available if she gifted without holdover, reducing the CGT to 10%. Child won't be able to claim this unless he/she starts working or becomes an officer at the company for at least a year before disposing of them.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Bare trust creation and CGT hold over relief

Postby maths » Mon Mar 19, 2018 11:33 pm

Bottom line: what is grandmother trying to achieve?


Return to “Inheritance Tax, IHT, Trusts & Estates, Capital Taxes”