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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15950
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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My aunt has recently died - her property which she purchased

Resolved Question:

My aunt has recently died - her property which she purchased in 1990 is held on Declaration of Trust under the following terms:
The Trustee ( my aunt) hereby declares that she holds the Property and the net proceeds of sale there on UPON TRUST as to 33.3% for the Trustee, 33.3% for Gary Chivers ( my brother ) and 33.3% for Keith Chivers (myself).
Gary Chivers and Keith Chivers hereby covenant that they shall not call for a sale of the property without prior consent of the Trustee ( my aunt) and that she will remain in the property fir the rest of her lifetime.
In her will she has stated:
' I give my property at the date of my death to my nephews Keith Chivers and Gary Chivers'
We are getting confusing and very conflicting advice on whether in these circumstances Capital Gains Tax is payable when we eventually sell the property on either
1) The gain made on subsequent sale since the market value at the date if her death
Or
2) The gain made since she originally purchased the property in 1990 up until subsequent date of sale.
Be very grateful for advice
Keith Chivers
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.

Hi. My name is*****'m looking at your question now and will post my answer or ask for more information here in a short while.

Customer: replied 1 year ago.
Thank you
Expert:  TonyTax replied 1 year ago.

Given that your aunt appera to have had the right to stay in the property for life, I would say that you have an interest in possession trust created during your aunt's lifetime. Normally, that would mean that on her death, the value of the property should be included in her estate for Inheritance Tax purposes with that value also forming the cost for CGT purposes for you and your brother.

IIP trusts created before 22 March 2006 were potentially exempt transfers which means that the value falls out of the donor's estate after seven years. However, your aunt was a beneficiary with a life interest as well as being the settlor so I cannot see how the gift into trust would not remain as part of her death estate, one way or another. In effect, she was giving nothing away.

I don't believe that the trust will have a CGT liability unless it sells the property as opposed to you and your brother selling it. It might have to do that if there isn't enough cash to pay the IHT liability if there is one, then iAs far as I can see, the property is now owned by you and your sibling.

Take a look here, here, here and here for information on interest in possession trusts

I hope this helps but let me know if you have any further questions.

Customer: replied 1 year ago.
Thank you - what I am unclear of is why my aunt would have been advised by her solicitor to make the Trust for us if there was going to be no benefit whatsoever in terms of reduction in IHT on her estate on death - that was the exact reason she did it in her tax planning on his advice - are you absolutely sure this is the case and is there any way to avoid this scenario at this stage?t
Expert:  TonyTax replied 1 year ago.

I suspect the advice was given by a lawyer who knew little or nothing about tax.

If the property had simply been given away by your aunt to the brothers but she retained the right to live there, that would have constituted a gift with reservation of benefit unless she paid a full market rent to them. The effect of a GWR is that the property remains in the estate of the owner and so IHT is not avoided. The brothers would then own a property they cannot sell with a cost for CGT purposes equal to the 1990 value as apportioned. THe GWR rules came into effect in 1986 so that may have something to do wiith the declaration of trust.

If I were you, I'd consult a tax lawyer to unravel it all. There is a contradiction in that the will says that your aunt leaves her eproperty to the brothers. lf it's in a trust, it's not hers any longer.

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