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Where Taxpayers and Advisers Meet

Best way to distribute to beneficiaries

jokerman
Posts:19
Joined:Fri Dec 22, 2017 9:26 pm
Best way to distribute to beneficiaries

Postby jokerman » Mon Apr 05, 2021 5:04 pm

Hi - hoping somebody can guide me here....

We have a family settlement trust where a chunk of the assets qualified for BPR and therefore at the recent 10 year anniversary there was no 10 year charge due. All trust funds have been held since the outset and the IHT qualifying shares have been held for 10+years (some purchased 2 years ago with replacement property relief).

As a trustee I wish to distribute some of the funds - some is cash and others is BPR-qualifying shares in an IHT fund.

Does it matter (from a tax or simplicity point of view) whether the trust sells the BPR-qualifying investment and then distributes the cash, or should the trust transfer the shares and let the beneficiary sell? (Note that one beneficiary is a minor).

Am I right in thinking that no IHT or other charges will be payable because there was no 10 year charge last time?

Will I need to declare the distribution?

Thanks in advance.

jokerman
Posts:19
Joined:Fri Dec 22, 2017 9:26 pm

Re: Best way to distribute to beneficiaries

Postby jokerman » Tue Jul 20, 2021 8:32 pm

Hi - would really appreciate some guidance on this!

I forgot to say that, as it happens, the BPR-qualifying investment has not increased in value (actually it's running at a small loss). I just mention this in case it changes the best course of action.

Thanks in advance.

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

Re: Best way to distribute to beneficiaries

Postby maths » Wed Jul 21, 2021 5:24 pm

BPR not really my field as it's too complex!. Another contributor AGoodman is better placed to answer.

For what it's worth, on any appointment of the shares out of the trust after the first 10 year trust anniversary should in principle give rise to no IHT exit charge (assuming all BPR conditions satisfied).

On such an appointment the trustees will be exposed to a CGT charge on any capital gain; effectively, the trustees are deemed to have sold the shares at their mkt value and reacquired them to hold as bare trustees for the beneficiary(its) to whom any appointment was made. Entrepreneur relief unlikely.

Any gain on future sale will then be for the beneficiary(ies).

A sale by the trustees followed by appointment of cash to beneficiaries gives rise to the above consequences.

CGT rate for trustees is 20% whereas for individuals the rate is 10%/20% depending upon their income tax position.
Annual exempt pt amounts £6150 re trustees and £12,300 for individuals.

You refer to possible capital losses not gains.

Whether shares appointed out or sold by trustees, losses are locked into the trust.

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

Re: Best way to distribute to beneficiaries

Postby AGoodman » Thu Jul 29, 2021 10:50 am

It's a tricky area. I agree with maths re an appointment of the shares. Holdover relief for any capital gains may be available under s.260 (for chargeable transfers, which takes priority over s.165 for business assets).

I have a feeling that if you appoint cash then an exit charge is possible - based on calculations ignoring the BPR at the anniversary.

You haven't mentioned the value - if the value of the trust fund at the anniversary (ignoring BPR) was under the nil rate band (and the settlor(s) hadn't made any prior chargeable transfers) then there would be no tax. If the value was between £260k and £325k then you may still have a reporting requirement but no tax. If the value is over £325k, you will always (I think) have to report as you have to claim BPR.

As it's so fiddly, I'd strongly recommend getting professional (paid!) advice but distributing the shares is likely to save IHT if the distribution is otherwise taxable.


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