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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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In 2002 my mother set up a Declaration of Trust on her property,

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In 2002 my mother set up a Declaration of Trust on her property, putting the title in the property in my name. Mum died in July 2013 and the property was eventually sold in February 2014. The sale price was £100,000. In 2002 I would estimate the value of he property to be around £90,000.

Do I have to pay Capital Gains Tax?



Can you tell me if there were any clauses in the declaration of trust other than the fact that the property was to be owned by you from the date in 2002 the trust document was signed. Did you live in the property at all during your period of ownership of it? Did your mother continue to live in the property until she passed away?

Customer: replied 3 years ago.
There were three beneficiaries named in the Trust: my mother, my sister and myself. My mum was named as the Life Tenant and was to be allowed to reside in the property, rent free. Neither my sister nor myself have ever lived in the property.

Mum did live in the property up till she died last year.



Was the property put into your name in the capacity of a trustee as opposed to you owning the property? Was the property sold by the trust or transferred out of the trust into the beneficiaries names before it was sold?

Customer: replied 3 years ago.
We were trustees. The property was sold by the Trust



Leave this with me while I draft my answer.

Hi again.


It seems to be that the trust set up in 2002 was an interest in possession trust with you, your sister and your mother as the beneficiaries. Since your mother was the settlor of the trust and the life tenant, the gift of her home into the trust was " a gift with reservation of benefit". This means that the seven year gift rule does not apply and on her passing in July 2013 the value of the property at that time should have been included in her estate for Inheritance Tax purposes. There may have been a lifetime Inheritance Tax charge at the time of the transfer of the property into the trust. See the notes under "Creation of a trust" here, under the heading "1 IHT" here and some HMRC notes here and here.


Take a look here for information on CGT and trusts. If you look under the heading "Situations when Capital Gains Tax may be due" it says that CGT may be due where a beneficiary becomes absolutely entitled to the assets in the trust if, in your case, the trust came to an end when your mother passed away. In that case, the cost of the property for CGT purposes was £90,000, the value in 2002 when it put into the trust, notwithstanding the fact that it remained as part of your mother's estate for Inheritance Tax purposes.


As the interest in possession trust was set up before March 2006, on the death of the life tenant, the CGT cost of the property becomes the value of the property at that time (July 2013) so only any increase in value between July 2013 and the actual disposal value is taxable with the first £5,450 being exempt for 2013/14. Take a look under the heading "2 CGT" on page 2 here. The net gain will be subjected to CGT at 28%.


You need to determine what the trust document says about the fate of the trust following your mother's death as that will determine the CGT "cost" of the property held by the trust. I would have thought the interest in possession rules apply and the cost is uplifted to the value in July 2013.


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

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