CGT on withdrawals from A&M trust

[impphil]

My children (2 of) are beneficiaries of an A&M trust set up by their grandfather in 2004 for his 3 grandchildren.

My children would now like to their shares of the trust transferred to them, or sold and transferred to them.

We received some questionable advice which suggested that the investments could be transferred into their names, and then they could each utilize their personal CGT allowance against the capital gains. From my understanding this is incorrect and CGT would be payable by the trustees at the point the investments were transferred. Also the CGT allowance would be the smaller value available for trusts (£5850 currently). Am I correct?

Is it allowable for the trust/trustees to retain the calculated CGT which is due, or does the whole amount have to be paid to the beneficiaries?

Thanks

[AGoodman]

Assuming the children have not yet reached the age when they have a right to the income (which could be 18, 21 or 25 - either from the trust deed or under statute), I would expect holdover relief to be available under s.260 TCGA. The children could then sell and use their own allowances.

The full analysis depends on whether the trust is still an A&M trust since the rule change in 2006 but I would expect the outcome to be the same. Either the interest vests absolutely at 18, in which case it will still qualify as an A&M (kind of), or the trust is now treated as a full blown discretionary trust. Both usually qualify for holdover relief but, if the latter, there may be a small IHT exit charge (depending on the value).

If the children already have a right to the income or capital then the relief may not be available.

What was your reason for your doubting the advice and/or your own belief?

[impphil]

Thanks, I hadn't read about holdover relief. I will stop considering the advice as questionable in that case. My reason for doubt was based on the limited information available about A&M trusts, I understood that CGT was payable at the point assets were transferred out.

The children are now 19 and 21 and the trust document states "The Trustees shall pay the income of the Share to the Grandchild during her life if she attains the age of 18.". My wife tells me that was changed at some point to 21, so I assume there's an amended version somewhere. There has been no income paid out so far.

[AGoodman]

You will want/need to confirm the actual provisions before taking any decisions. This is vital.

If they receive only income at 18 or 21 then it will now be a relevant property trust and holdover should be available on that basis. There may be a small IHT exit charge on any distribution of capital.

You should get an accountant to help you to file the returns and apply for holdover.