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bigduckontax, Accountant
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My daughter's invested in a property in Jan 15. Because one

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My daughter's invested in a property in Jan 15. Because one was not yet 21 her name couldn't be added to the mortgage so the property was purchased in the older daughter's name but a trust was set up giving an equal share/liability to the younger daughter. The property has been rented out since but they now wish to realize the assets from the property & it is currently up for sale. In these circumstances do they both qualify for a CGT allowance? Also if my younger daughter moves into the property until the sale went through would they qualify for Principal Private Residence relief?
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. As the property is in trust there is a danger of no entitlement to Private Residence Relief (PRR). To get PRR one must be an owner occupier and unfortunately neither daughter owns the house, the trust does. There is, however an exception [source: HMRC Help Sheet 283]: 'The trustees of a settlement may claim relief if they dispose of the only or main residence of a person entitled to occupy that residence under the terms of the settlement. This is provided that, in calculating the amount of the gain arising on the disposal that would be a chargeable gain if the relief did not exist, no account would have to be taken of any Gifts Hold-over Relief obtained under Section 260 of the Taxation of Chargeable Gains Act 1992 by any person for any earlier disposal.' A Trust can also be entitled to Lettings Relief (LR). Here is the Tax Cafe's advice: 'Where a property is occupied as a main residence by the beneficiary of a trust, the trust is entitled to the same amounts of principal private residence relief and private letting relief as that beneficiary would have been entitled to if they had owned the property themselves.' It would therefore appear that if the beneficiary, the younger daughter, moves into the house then both PRR and LR (up to 40K) for the proportion of the time spent in occupation. On disposal the trust will be liable for CGT on a proportion of the gain the gain at a rate of 28%, I am so sorry to have to rain on your parade. It is, I regret, a curate's egg.
A not very well expressed opinion, sorry, but it was a little early in the morning! PRR will apply proportionately to the beneficiaries occupation of the trust property. By her occupation after letting this opens the door to LR which will be available up to 40K.
The liability falls on the trust, not the beneficiaries.
Customer: replied 2 years ago.
I am sorry but I have found your response a little confusing. The declaration of Trust states the property is held by my eldest daughter upon trust 50% for herself & 50% for her sister & I understood from the solicitors that set this up originally that the Revenue would regard any tax liability as being also being split equally.
With that in mind & the comments in your earlier response, can you clarify that if my younger daughter moved into the property as a beneficiary, whether they would qualify for PPR & Letting Relief on 100% of the property not just her share. Also I understood that 18 months of relief is available without any qualifying minimum term of occupancy whereas your reply seems to indicate that relief is only available for the proportion of time whilst my daughter is actually in residence.
As far as Letting Relief is concerned if they had owned the property for less than 18 months at the point of sale & my youngest daughter had been resident for a period of time within that timescale would they qualify for the whole 40k relief or again would this only relate to her 50% share.
Any clarification you can give in simple terms would be really appreciated.
Right, thank you for that clarification. I did not get round to the 18 month rule, sorry. Yes, when the proportion of occupation time is calculated an additional 18 months is added and increases it thus reducing the exposure of the gain to CGT. The rules for beneficiaries permit to entitlement to PRR. As the trust is a 50/50 split then each would be exposed to half the gain. For there relevant occupation times plus the last 18 months PRR would apply to the both of them. Both would be entitled to Lettings Relief (LR) up to a maximum of 40K each. After all that has been taken into account any CGT payable would be met by the trust and taxed at 28%. All this taxation is the Trust's not the beneficiaries liability, but their rights to PRR and LR permeate through to the trust. I accept that it is a tad confusing.
Customer: replied 2 years ago.
I am still not completely understanding this.
Given the 50/50 trust split, if the tenants vacated now (which they are happy to do) & only my youngest daughter moved into the property for say the last couple of months before the sale went through, if the gain before any deductions was £35,500 since purchase in Jan 15, is there any CGT liability likely?
35500 / 2 = 17750 each. The last 18 months extends the PRR to the whole period of ownership which only started in Jan 15 so this will apply and there is unlikely to be any CGT. Under the 18 month rule the beneficiaries are deemed to be in occupation for the last 18 months of ownership. even if this is not the case.
Customer: replied 2 years ago.
So have I got this right, if my youngest daughter resides in the property, PRR covers her 50% liability & because she is living in the property my eldest daughter can benefit from LR which should cover her liability?
You have it to a 'T.'
Customer: replied 2 years ago.
Just out of interest if my daughter didn't live in the property would there be a CGT allowance of £11000 each to offset against the taxable gain or would the trust have an allowance of £11000 in total or would an allowance of this nature not exist in this circumstance?
Also is there a procedure to notify the revenue of my daughter's residence in the property & the subsequent claim of the PRR & LR or do we wait for them to query this with my daughter's after the sale?
No, because your daughter did not own the property, she is merely occupying as a beneficiary under a Trust. She obtains her tax concessions by virtue of the Trust, but unfortunately the Annual Exempt Amount, the 11.1K you mentioned, does not apply. LR and the 18 month rule would appear to cover her though. There is no requirement to notify HMRC of her location, however if changes of address are notified then it will make her case easier in the event of a query.
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Customer: replied 2 years ago.
Thank you for your advice. It's been really helpful.
Delighted to have been of assistance.
Thank you for your support.