I am acting for Trustees of a discretionary will trust which own a share of a property which is occupied by the surviving spouse, one of the beneficiaries of the trust. They are now looking to sell the property.
We have been looking into whether the Trustees can claim PPR for the Trust’s share of the property based on the spouse’s occupation. There is no express power for the Trustees to allow a beneficiary to occupy the property; however the CGT manual (link - https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65407) states that it is possible to imply a power where it is clear this was the settlor’s intentions. In this case we have a letter of wishes which clearly sets out that the surviving spouse is to live in the house and use it as her main residence as long as she wishes to. We cannot find any case law on this point.
Has anyone dealt with such a case and successfully argued an implied power with HMRC or knows of a case on this issue?
I believe, as long as the Trustees are exercising one of their powers to allow a discretionary beneficiary to benefit, then you should have no problems.
Problems might occur, when there is no evidence of them doing so…IE, the fairly typical case of nothing being formally said/done and simply allowing the spouse to continue to live there. HMRC might want to raise an argument then. However, even if there are fairly regular trustee meetings (not necessarily annually) where they decide to allow that to continue, I think you’ll have a strong case.
The key is occupation “under the terms of the settlement” (TCGA 1992 s225). Is this satisfied if the will contains no power to allow a beneficiary to occupy.
Arguably, the trustees have a general power to allow occupation by a beneficiary and hence s225 is satisfied.
HMRC have other potential arguments seeking to deny s225 application but on balance I think it would be difficult for HMRC to deny s225 from applying.
I have a similar problem but regrettably no discretionary trust. Deceased divided estate between four beneficiaries. Three shares outright to adult children the remaining share held upon life interest trust for adult son under a disability. He had always lived at home, never married and was supported by his late parents and three siblings.
The three trustee siblings decided to permit their brother to continue to reside in the property. Two later died and the surviving sibling as sole trustee is content to swear if necessary that he and his late brothers had agreed (as trustees) to allow their brother to remain in the property for the rest of his lifetime. Sadly nothing put down on paper at the time.
Fast forward 25 years and brother has to leave the property to go into residential care as he can no longer cope. Property sold shortly after but proceeds not yet distributed. Brother in care has now died.
Can we claim s225 relief? The intention was clear but only one quarter of the property (or proceeds of sale) was held on lifetime trust.
Any thoughts on my quandary please. I have to submit IHT return for deceased brother and am unsure how to deal with the property tax issue? Would there be PPR on the whole property at time of sale, or would only brother who had occupied be entitled to relief (25% share held in trust for his lifetime)?
Failing any words of wisdom could anyone suggest suitable Counsel to advise please?
TCGA 1992 s225(1) provides “…shall apply in relation to a gain accruing to the trustees off a settlement on a disposal of settled property … during the period of ownership of the trustees…”.
Presumably therefore only the gain of the trustees is eligible to qualify for relief.
There is a possibility that all of the home was held in trust until sale.
In these circumstances my understanding is that HMRC accept that at least one beneficiary has occupied and meets PPR qualification rules relief is given on the whole of the trust gain rather than just the share of the occupying beneficiary.
Where a property is owned by an IIP trust with, say, four individuals each possessing an IIP, PPR under TCGA 1992. s.225 would apply to the whole gain on a sale of the property by the trustees so long as at least one of the IIP beneficiaries occupied the property (ie not necessary for all to occupy).
I’m not sure Crowe v Appleby is of help in the Kathy’s scenario.