Transfer of unit trusts to son on attaining 18

[sharpener]

From April 1998 to October 2002 I invested £500/month in a unit trust account designated with my son's initials. The intention was to transfer it into his name when he became 18 in 2004, however at the time I forgot to do this.

If sold today there would be a loss for CGT purposes of £9940 after £235 indexation and £22 taper relief (most of the units were bought above today's price). I am assuming that the "transfer to spouse" system for keeping the indexation will not work in this case. What are the alternatives for remedying the situation without losing (i) the potential CGT losses either on my part or my son's and (ii) the IHT treatment of the original unit purchases as gifts (which by now are nearly all more than 7 years in the past)?

[Peter D]

Indexation and Taper releif does not apply to CG losses. Indexation applied prior to April 98. Shame about the loss. !! Regards Peter

[sharpener]

Because the units were bought at different times and prices, a sale now would (according to the calculations by the FairShares programme I use) realise an overall loss but this is a mix of gains and losses on individual tranches and the gain on the oldest will benefit from £235 indexation.

But this is not the main issue, do I ask the unit trust managers to transfer the a/c into my son's name, or sell the units to crystallise the losses and give him the money, or something else??

[JS123]

Consider if you would use the losses. If yes, then it may make sense for you to sell the shares and give your son the cash. This would of course be a gift for IHT) subject to the annual £3k exemptions and potentially exempt ie OK so long as you live another 7 years.
If you gift the shares to your son, IHT position is the same. Gift is for CGT a not arms' length transaction so market value is used. This would give rise to a loss also of course BUT this loss could only ever be used against gains on other transactions with your son.
Above assumes that despite the designation you remained the beneficial owner throughout. Arguably you were only the legal owner and your son was beneficial owner from the outset, with different consequences, and the transfer at 18 is only a legal formality.
Hope that is some help.

[sharpener]

Thanks JS

I think the CGT position is that, since I have realised other gains of ~2k this year, if I sell the units before 6 Apr these would be set against the losses and I would carry 7940 forward. If I sell after 5 Apr I would carry the full 9940 forward (assuming as is likely no other sales next FY), so the potential tax saving is 18% of 2k which is more than the indexation and taper relief are worth on selling immediately.

"Arguably you were only the legal owner and your son was beneficial owner from the outset"

This is what I am hoping will apply, as I believe HMRC and the fund managers accept this position for gifts into accounts designated for children, is there anything specific I need do to assert/maintain it besides having them re-registered in my son's name? Then presumably he would have the benefit of any CGT losses when he comes to sell. But I imagine if he is regarded as the beneficial owner from the outset he will lose the indexation and taper relief.