Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.
Your current house is the pair of you's sole or main domestic residence so the transfer to you of her share will be entitled to Private Residence Relief (PRR). Although this transaction counts as a disposal for Capital Gains Tax (CGT) purposes PRR relieves any gain at 100%.
Any gift to her will be a Potentially Exempt Transfer (PET) in your Inheritance Tx (IHT) affirs. PETs run off at a taper over seven years and in the event of your decease within this period are added back to your estate for IHT purposes. IHT kicks in at 325K at a flat rate of 40% on the surplus and PETs are the first to suffer IHT. If your estate is insufficient to meet the IHT on the PET the liability cascades down to the beneficiary for immediate settlement. The classic defence against a PET is, of course, a reducing term life insurance policy.
Only one problem remains; you mention a 'deed of trust.' Please be so kind as to expand upon that wording.
Trusts can be extremely complicated on the taxation front. I would advise you to seek the taxation position of such a trust from the solicitor who recommended it if they are even aware of the taxation dangers in this area.
This sounds like a bare trust to me and you are liable to Income Tax on any income earned by the trust. In the scenario you set out there would be no income hence no tax liability.
Thank you for your support. Trusts can be an absolute minefield unless set up correctly. You might be better to protect you position with the Scarborough house by placing a charge on the title. You would then be paid out from any subsequent sale.
Thank you for your most generous bonus.