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Where Taxpayers and Advisers Meet

Life Interest Trust and CGT

BJT
Posts:3
Joined:Wed Oct 06, 2021 12:19 pm
Life Interest Trust and CGT

Postby BJT » Wed Oct 06, 2021 12:57 pm

Hi All,

When my father died ~20 years ago he left me 25% share in a house he jointly owned with my step-mother in a life interest trust. My step-mother continued to live in the house until she recently died and the house has just been sold. I have never lived in this house.

I am unsure what I do now, the property has probably doubled in value in this time, can anyone advise:

do I need to pay CGT?

if so:

is this done on-line and how long do I have to complete this?
I am not sure what the value would have been at the time of my fathers death and whilst work has been
done to the property in the last 20 years I am not sure about those exact cost, either, do I just estimate?


this and any other advice with this matter would be greatly appreciated.

AGoodman
Posts:1341
Joined:Fri May 16, 2014 3:47 pm

Re: Life Interest Trust and CGT

Postby AGoodman » Thu Oct 07, 2021 9:50 am

Assuming your step-mother had a life interest in the 25%, the base cost would be increased to market value on your step-mother's death.

You personally would only suffer CGT when the property is sold and then only if the 25% share has increased in value over the market value at her death.

The trustees of the will trust and the executors will be dealing with IHT and presumably the sale. If you are a trustee or executor then you should take some advice.

Jholm
Posts:222
Joined:Mon Mar 11, 2019 4:22 pm

Re: Life Interest Trust and CGT

Postby Jholm » Thu Oct 07, 2021 11:01 am

Possibly missing something, but says he/she inherited the 25% share approx. 20 years ago from father.

BJT
Posts:3
Joined:Wed Oct 06, 2021 12:19 pm

Re: Life Interest Trust and CGT

Postby BJT » Thu Oct 07, 2021 2:31 pm

Thanks for interest and reply:

Just to clarify, my step-mother had a 50% share in the property, herself and the other 50% was split equally between me and another sibling. My fathers will provided his wife with a life interest (or interest in possession) of his 50% share in the property.

I also inherited my step-mother share of the property but it seems this is covered by IHT.

The executer is a law firm, now the property is sold they have told me to seek advice on whether I pay CGT.

I've not inherited before and have no idea about tax on trusts. So I'm not sure if this is a clear cut thing or more complicated than first I first thought.

It seems odd that my father could have left everything to his wife (step-mother), instead of setting up a life interest trust and then on her death she could have left everything to her step-children who then would not be liable for tax as its covered by IHT allowance, yet by setting up a trust we would be liable for CGT . Unless of course CGT on the trust is calculated from the time of her death to sale (as AGoodman) has suggested.

maths
Posts:8333
Joined:Wed Aug 06, 2008 3:25 pm

Re: Life Interest Trust and CGT

Postby maths » Thu Oct 07, 2021 4:29 pm

It seems that father left his 50% on life interest trust for his wife remainder to you (25%) and your sibling (25%).

On wife's death her 50% she held directly is left to you (your sibling acquires nothing or half her 50%??). You inherit this 50% at its market value at date of her death for CGT purposes. For IHT (if any) this would probably be payable out of her total estate.

On wife's death her life interest in the 50% her husband left in trust terminates and you/sibling each acquire 25% at market value at date of her death.

Following her death you will have acquired her 50% interest she held directly (MV say 100) plus 25% (ie one half) of father's original 50% he left on trust (MV say 35). You thus own 75% (sibling owns other 25%) of the property with a total MV of 135. If property then sold for say 300 of which you own 75% (ie you get 225) then your capital gain is 225 less 135 ie 90.

BJT
Posts:3
Joined:Wed Oct 06, 2021 12:19 pm

Re: Life Interest Trust and CGT

Postby BJT » Fri Oct 08, 2021 1:05 pm

Thanks for replies, so it seems that when the life interest trust terminates at the time of my step-mothers death I acquire the asset (25% of house) for the trust at market value (which becomes the base cost). So selling the house immediately would mean no CGT?

If this is the case, as I understand it, I assume I need not declare anything to HMRC within 30 days of sale, or should I get this in writing from a tax consultant?

maths
Posts:8333
Joined:Wed Aug 06, 2008 3:25 pm

Re: Life Interest Trust and CGT

Postby maths » Sat Oct 09, 2021 9:18 pm

Correct.


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