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Where Taxpayers and Advisers Meet

Gifting a beneficial interest in a commercial lease

samuelp
Posts: 7
Joined: Fri Nov 27, 2015 1:40 pm

Gifting a beneficial interest in a commercial lease

Postby samuelp » Mon Oct 29, 2018 9:18 am

My wife and I have a Commercial lease for a retail properly with residential uppers which was acquired around 30 years ago when I purchased a business as a going concern. There is 7 years remaining on the lease. I have granted the lease to a third-party for which I get an Income of £30k per year which is split with my wife.

We would like to gift the beneficial interest in the lease to our 3 grandchildren (all minors) through a Bare Trust. The aim is to reduce our taxable income and for the grandchildren to use the income to pay their private school fees. I assume the grandchildren can use their tax free allowance and hence pay no tax on the income.

What I would like to understand is:

1. Does my proposal work?
2. How do I gift the beneficial interest in the lease to the Bare Trust - Can I simply use a Declaration of Trust?
3. Is any CGT or SDLT applicable to the gift or any other tax?
4. Can I open a bank account for the Bare Trust and if not, what bank account do I use for the income?
5. Do I complete a tax return for each of the grandchildren (But not for the Bare Trust)?
6. Are there any disadvantages to this setup?

AGoodman
Posts: 852
Joined: Fri May 16, 2014 3:47 pm

Re: Gifting a beneficial interest in a commercial lease

Postby AGoodman » Wed Oct 31, 2018 1:01 pm

If I understand this correctly, you have been granted a commercial lease, which has 7 years left to run and you have in turn granted a tenancy (sub-lease) to a third party, who pays you rent.

I assume you do not have to pay rent yourselves to the owner of the freehold.

1. Yes, probably
2. Yes, a declaration of trust could do it but you need to check if your lease allows it - it will contain restrictions on disposals.
3. Yes, CGT could be payable - It could be a complicated calculation
3(a). it would be a gift so a PET for inheritance tax - I assume you will not receive any continuing benefits (e.g. you are not living in the resi part)
3(b). I don't think SDLT is payable as no consideration
4. You could try ! Smaller banks may be more accommodating. Failing that you could have a separate account in your own name and make a private declaration of trust over it. Banks will probably let you open a designated account for each child.
5. Somebody would need to if their income exceeds their annual allowance
6. Presumably there are also outgoings of some kind? You need to take into account how they will be paid.

samuelp
Posts: 7
Joined: Fri Nov 27, 2015 1:40 pm

Re: Gifting a beneficial interest in a commercial lease

Postby samuelp » Thu Nov 01, 2018 11:00 am

Thanks for your response.

Regarding your response to 6, can the income from the Lease to the Bare Trust be used to pay expenses for the lease e.g. Rent review, accounting etc? Can these expenses be deducted from income for tax purposes?

Thanks again for your assistance.

samuelp
Posts: 7
Joined: Fri Nov 27, 2015 1:40 pm

Re: Gifting a beneficial interest in a commercial lease

Postby samuelp » Thu Nov 01, 2018 11:11 am

I thought this may be relevent to my question.

https://www.taxation.co.uk/Articles/2017/10/03/337034/deduction-trust-management-expenses

AGoodman
Posts: 852
Joined: Fri May 16, 2014 3:47 pm

Re: Gifting a beneficial interest in a commercial lease

Postby AGoodman » Thu Nov 01, 2018 11:35 am

Yes, they could be paid from income, I just meant you need to think about the mechanics.

That link will not apply here as the trust is not a "trust" for these purposes. The rental income and any outgoings are considered to be those of the children. They can make deductions as any other landlord would.


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