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TaxRobin
TaxRobin, Tax Consultant
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Experience:  International tax
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I have contributed monthly to a bare trust instituted at his

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I have contributed monthly to a bare trust instituted at his birth on behalf of my grandson. The trust holding is in the form of investment trust shares which have substantially risen in value over that period. He is now 18 years old and can have the shares transferred to his own name. My query is: If he disposes of part or the whole of the holding in the future, is his personal liability for Capital Gains Tax determined using the market value of the share price at the time of hand-over as a base, or calculated from historical purchase prices over the years within the trust.

Brian Leitch
Submitted: 3 years ago.
Category: Tax
Expert:  TaxRobin replied 3 years ago.
Hello,
Actually HMRC has a very good example to follow:
Example 2
***** ***** sets up a trust under which his grandchildren Trevor and Charlotte are entitled to the property if they reach the age of 25. The assets are quoted shares.
On 1 May 2012 Trevor reaches 25. He is entitled to half the property, so the trustees are treated as having made a disposal of half the property for Capital Gains Tax purposes.
They keep the shares and then sell a block on 1 May 2013. Half of these shares are regarded as sold by them and the gain calculated by reference to the original cost. The other half are treated as sold by Trevor who has a gain based on the value at 1 May 2012.
On 1 October 2013 the trustees hand over to Trevor half of the remaining shares. That is ignored. If Trevor then sells some of the shares, his cost is the value on 1 May 2012.

In the example you can see that the value for the grandson is based on the value when he received the shares.

The above example is listed in HMRC helpsheet 294:

http://www.hmrc.gov.uk/helpsheets/hs294.pdf


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Customer: replied 3 years ago.

Thank you. I've seen this example but may I seek further explanation? How the grandson's future liability for CGT is determined is clear. But it seems the trustees also have a joint liability, based on cost of shares bought over the 18 year period, and the gains accrued at the time of hand-over. Is that correct, in which case, to minimise or even eliminate their liability, the hand-over should be made in several tranches over


successive years?

Expert:  TaxRobin replied 3 years ago.
The transfer to him would be disregarded. If the you, the trustees sold some of the stock you would have to pay tax on the gain from the date of the original purchase.
You could transfer all to him or you could sell and give him the money.
If you decide to transfer over time then his date does not change but you would still not pay CGT unless the trust sold prior to transfer of stock in his name.