I have an old IIP trust formed pre 2006 with three beneficiaries. The trust was formed a number of years ago and holds a large proportion of quoted investments with low CGT base costs, some holdings were held before 1982.
One of the beneficiaries (X) died last year, and under the terms of the trust their interest passes to their adult children.
The deceased’s interest in his share of the underlying assets within the trust form part of his estate in accordance with s49/s50 IHTA 1984.
Whilst there is a CGT uplift in base cost of the investments held in the trust, only the deceased’s interest in those investments will be uplifted, for example if the trust held 90 shares in say BP plc only one-third of the value will have been uplifted the two-thirds balance continuing to have a March 1982 value.
The trustees will have to sell a number of shareholdings to pay the significant IHT charge. My understanding is that if the trust disposes of these shares there will also be an additional CGT charge on the deemed sale and reacquisition on death (s72 TCGA 1992).
It has been suggested that the trustees may wish to view the trust as having three different “pots” or “funds”, with the X Fund holding one third of the investments and uplifted CGT base cost, the remaining fund or pot holding investments with 1982 values. The trustees would then sell investments from the X Fund which given the uplifted CGT base cost would mean that the CGT exposure would be minimal.
I can see from an accounting perspective that this makes sense as it means only the beneficiaries of the X Fund bear the reduction in the value of their fund and income going forward. As the X Fund is now in the relevant property regime it also makes sense when looking at future decennial/exit charges.
However, I am not aware of it being possible from a CGT perspective to segregate the investments in the way described above, my understanding being that each investment would have a pool being a proportion of original cost/1982 value and 2018 value.
I’d be grateful for any thoughts or comments on the above.