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bigduckontax
bigduckontax, Accountant
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Myself and my wife are the registered owners of 4 flats, which

Customer Question

Myself and my wife are the registered owners of 4 flats, which we have recently sold.
My children have a 60% interest - held as a "bare trust" (12% each 5-children, 3 of which are over 18) we have made a capital gain on this property. Which I need to declare to the IR for cgt. For the 18 year olds I can do this online in their names directly. But 2 children are under 18. How do I complete a return for them?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
Property Tax Portal has the following advice:
'One possible solution is to create a ‘bare’ trust. A ‘Bare’ trust can be created where that the child is the beneficial owner, and the parents are the legal owners who hold the property effectively as nominees. When the property is sold it will be taxed only on the child (who will have their own CGT annual exemption, and perhaps lower tax bands - if they don't have much other income) and not on the parents.'
Thus, as you already know, the children have a CGT position; however the liability falls on you personally as the trustee of the bare trust and is declared on your own annual self assessment return. Here is the relevant HMRC (the Inland Revenue was combined with HM Customs and Excise some years ago to form HMRC) advice on this matter:
'Bare trusts and Capital Gains Tax
Capital Gains Tax is a tax on the gain in the value of assets such as shares, land or buildings. A trust may have to pay Capital Gains Tax if assets are sold, given away or exchanged (disposed of) and they’ve gone up in value since being put into trust. The trust will only have to pay the tax if the assets have increased in value above a certain allowance. This allowance is known as the 'annual exempt amount'. The assets of a bare trust are treated for tax purposes as if the beneficiary holds the trust assets in their own name. In a bare trust the beneficiary pays the tax as if they owned the assets directly.
If you're the beneficiary you must declare any chargeable gains on your personal Self Assessment tax return.'
Each beneficiary, as explained above, receives the benefit of any exempt allowances available under the CGT regime.
I do hope I have shown you the way forward in this matter.
Customer: replied 2 years ago.

Hi,

A bit confused here! Particularly para 4 - re-liability. The children's property assets are indeed held in a "bare trust" since being under 18. The source was as a result of their grandfather's estate. So they are the beneficiaries of any gain made. So why would this be entered on my personal tax return? (We have not in the past needed to pay tax on the bare trusts since allowances have not been exceeded. ) Can you explain further?

thanks

Robin

Expert:  bigduckontax replied 2 years ago.
Sorry Robin, that is the tax law as it stands at present; it is your liability, full stop.
I am so sorry to have to rain on your parade.
Customer: replied 2 years ago.

Never mind the rain. But I'm not the beneficiary here, I'm one of the trustees?

Expert:  bigduckontax replied 2 years ago.
I am aware of that Ribin, but must reiterate HMRC's advice that I told you before:
'The assets of a bare trust are treated for tax purposes as if the beneficiary holds the trust assets in their own name. In a bare trust the beneficiary pays the tax as if they owned the assets directly.'
Please don't shoot the messenger!
Customer: replied 2 years ago.

I think we are at cross purposes here. I understand 'The assets of a bare trust are treated for tax purposes as if the beneficiary holds the trust assets in their own name. .....' So the beneficiaries' tax allowances and rates apply here. So return to the original question - how do I complete a return. Which form etc.

Expert:  bigduckontax replied 2 years ago.
It forms part of your own annual self assessment tax return (see below) as you are the trustee, but any tax liability itself falls not to you, but to the beneficiaries.
It is part of the SA108 form which you render with your return. You can obtain a copy from HMRC order line along with the voluminous guidance notes. The HMRC employees who will send you the form invariably will ask you if you need a copy of the guidance notes also, but if they don't mention it don't forget to ask.

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