The beneficiary of a trust can live in a property held within a trust as their main residence and on the future disposal of the property Principal Private Residence (PPR) relief will be available.
However, if a ‘hold-over’ election was made on transfer into the trust PPR is denied on any subsequent sale. This is the position whether the trust sells the property or the property is transferred out of the trust and then the transferee sells.
Therefore, the choice is between:
- paying capital gains tax (CGT) at the date of transfer into the trust based on the market value and claiming PPR relief on the future sale; or
- ‘holding over’ the gain on transfer into the trust, but the trust being liable to CGT on the whole gain on the final sale.
Where a property has been subject to a ‘hold-over’ relief election PPR exemption is no longer available until after it has been sold to a third party.
Consider not electing for ‘hold-over’ relief into the trust but opting to pay CGT sooner rather than later, especially if it is thought that CGT rates are likely to rise in the future.
This is a sample tip taken from our 112 page guide:101 Tax Tips For Landlords 2016/17