Termination of an interest in possession

CGT on Trusts

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My mother set up a trust with her house which she owned outright in 1999. The trust gave her an interest in possession for life, following which the property passed to me & my two sisters under the trust. The trustees are my two sisters and me. My mother died in January 2016 and the house was sold and the proceeds passed to me and my two sisters in June 2016. Question 1:- Is there a charge to CGT at the time of my mother's death ? Question 2;- If so is that gain assessed on the Trustees as a single tax paying entity or on the trustees as individuals? Question 3 :-Do the trustees have to submit a  tax return ?

This is all outside of my usual line of work and I would like some guidance please.

Replies (5)

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By Portia Nina Levin
03rd Aug 2016 12:56

No. N/A, and are they directors of one or more limited companies?

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Worm
By TheLambtonWorm
03rd Aug 2016 14:47

If I remember right, the trust benefits from PPR for the period until death - so no gain there.

At the date of death you each inherited your share at the probate value, so unless there was an increase in the value of the property in excess of yours & your siblings £11k annual CGT exemptions between January and June 2016, then there wont be CGT to pay.

I'm sure PNL will correct me if I'm wrong in any of that. IIP trusts, like a great many other things aren't my forte.

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Worm
By TheLambtonWorm
03rd Aug 2016 14:48

You may have to prepare tax returns, depending on the house sales proceeds.

I don't think the s8060 directors exemption applies here.

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By SteveHa
03rd Aug 2016 15:45

Provided your mother was allowed by the trustees to live in the property according to the rules of the trust, PPR to date of death is available. If the property was sold immediately after death it's unlikely to have made much more of a gain such that it will be below the exemption, though note that the trust exemption is only £5,550 and not £11,100 as it is for individuals. If the post death gain is more than this then a capital gains tax charge at 28%.

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By Emily Yan-Miles
04th Aug 2016 10:33

PPR is not applicable, because there is no gain for it to exempt.

Because the trust was established before 23 March 2006, the trustees are deemed, by TCGA 1992, s 72(1) to have disposed of property and immediately reacquired it at market value at the date of the Mum's death, without any gain accruing on the disposal.

If following Mum's death brother and sister are entitled to the trust property absolutely, then they already have the beneficial interest, and so there will not be a CGT disposal if the property is transferred into their legal ownership. Indeed, the trust might simply have ceased on Mum's death.

If there is no CGT disposal, and no income, then there is no need to notify chargeability. And if no notice to deliver a return has been issued, there is no need to deliver one.

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