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bigduckontax, Accountant
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A, who died in September 1997, left in trust in her will her

Customer Question

A, who died in September 1997, left in trust in her will her home property then valued at £75000 to her elder daughter D1 as liferent, then to her other daughter D2 as liferent, then to her two grandchildren, D2's children, equally as an absolute benefit.
D1 died in October 2015 and D2 had in April 2015 waived all her rights in the property so that the benefit would pass to her children, A's only grandchildren. The property will have to be included in D1's estate for IHT purposes at its current value of £230000.
Should the Trustees now sell the property and pass the proceeds on to the grandchildren? Or should the Trustees now pass the property title to the grandchildren for them to realise the proceeds for themselves?
What would be any tax consequences on Trustees and/or D2 and/or the grandchildren of either approach - including, any CGT and IHT? Both grandchildren are adult, one is married with two children and the other is single with an adopted child. D2 is in her 70s
Many thanks.
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

Trust law and taxation is extremely complex, but I would suggst that as the property is being passed down the chain it would be for everyone's benefit for the Trust to make the transfer. The Gov UK guidance says:

'There’s no tax to pay in bare trusts if the assets are transferred to the beneficiary.'

Now if the Trustees sell the property that is a very different kettle of fish and any gain will be taxed under the CGT regime unless Private Residence Relief (PRR) applies ie when the property is the main residence of a person entitled to occupy under the rules of the trust. PRR relieves CGT at 100%. Otherwise a Trust is taxed at 28% on any gain less GBP 5.55K (half the entitlement of an individual entitled to Annual Exempt Amount (AEA)). It would thus appear that for the Trust to transfer the property and then wind up would be the better option tax wise

I do hope that you have found my reply of some assistance.

Customer: replied 1 year ago.
Neil, many thanks for your prompt response.1) My understanding of your reply is that if the Trust transfers the property to the grandchildren and then winds up, rather than selling the property itself, there will be no tax on the Trust or on the grandchildren. Is that a correct understanding, please?2) Also it appears you consider this to be a Bear Trust as the assets (the home property) are to be transferred to the grandchildren. Does the fact that the "income", that is the right to occupy, accrued to the recently-deceased daughter have any impact on whether it is a Bear Trust?3) Would PRR be the considered status of the property, given that its only occupant under the will was the recently-deceased daughter?4) How much of a delay is acceptable to HMRC between death of the daughter and the transfer to the grandchildren by the Trust?I look forward to hearing from you further. Kind Regards.
Customer: replied 1 year ago.
Keith, have you received my response ok?
Expert:  bigduckontax replied 1 year ago.

1. Yes.

2. Well, I am not a Trust lawyer, but the trust appears to be a relatively simple bare trust. The right to occupy is not income, merely a licence for occupation.

3. PRR only applies to the period(s) when the premises are occupied by a person so entitled under the terms of the Trust. So long as PRR apoplies CGT is relieved at 100%.

4, Even HMRC accept that landed properties cannot be disposed of as quickly and easily as say a second hand car. For example PRR is extended for the last 18 months of an ownership irrespective of who actually is in residence so that sort of period would probably be acceptable to HMRC.

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