10 Year - Exit charge

I would be interested in views on a matter where the deceased died in 2010 and left her estate ie just her property worth £240,000 at the time upon a Discretionary Trust. The Husband carried on living in the property which was the deceased intentions and the executors took no steps to deal with the estate or the property.

The Husband and his step-daughter did not get on and they only applied for Probate in 2021 when the Husband advised he intended to move on and they should split the sale proceeds. The property has now just sold in March 2022 for £425,000. There was no formal vesting of the property.

I have been asked to consider Tax issues and suspect we should register the trust and file a Tax Return claiming Principal Private Residence relief for CGT purposes.

However with IHT, my starting point is that there should be a 10 year IHT charge calculated for 2020 (10 years since date of death) and an exit charge for 2022, which could give rise to charges of £6,000 and £1,200 (subject to getting a slightly lower retrospective property valuation for 2020).

Is it arguable that in 2020, the property still formed part of the deceased’s un-administered estate and this would result in an effect rate of tax of 0% when working out the 10 year charge and therefore no tax charge, and which effective rate carries through to the exit charge rate also in 2022 when the executors/trustees receive the sale proceeds and then Advance or Appoint the proceeds to the beneficiaries.

I did wonder if the 3 month rule could apply but wasn’t convinced it could be argued the settlement was created when the executors finally record passing assets to the Trustees in 2022 and subsequently within 3 months appointed out the sale proceeds to the beneficiaries.

Any helpful views would be most welcome.

Can you please clarify if the property was only Hers and left in Trust with a life interest to the husband in the Discretionary Trust, as this is not too clear?

The ten year anniversary of the DT is measured from the date “on which the settlement commenced” [s61(1)]. The settlement commenced “when property first becomes comprised in it” [s60].

As the DT was set up on death property compared in it is treated as becoming “comprised in it on the death of the testator” [s83].

However, on the testator’s death, did the surviving spouse acquire an IPDI. If so, then s 80 is in point wrt identifying the date property becomes comprised in a separate settlement made by the surviving spouse. However, even where s80 is in point, the ten year anniversary occurs ten years after the date of creation of the DT on the first death [s 61(2)].

On sale, under either of the above scenarios, no CGT should arise (either because of the IPDI or, where no IPDI subsists, if under the terms of the DT a beneficiary is entitled to occupy the property).

Malcolm Finney

Thank you Malcolm.

There was no IPDI, it was a simple Discretionary Trust in the Will of residue, the property being the only asset available to fund the Trust.

However everything was just left as it is as can often happen!

Thanks SeniorSam. There was no IPDI, it was a simple Discretionary Trust in the Will of the deceased wife, of the residue of her estate, the property being the only asset available to fund the Trust.

Thank you Neil.

I remain confused in that on the first death 50% of the property was gifted in Trust, leaving the husband with 50% in his name. Is the husband now suggesting that with the sale of the property at £425,000, his £212,500 (50%) that he owns to be split between him and his step daughter?

In this case it is the whole of the property owned by the deceased party being the Wife.
The husband did not own any share of the property.

Thank you for the clarification that the whole property was gifted in Trust by the wife and the husband now wants 50% of the Trust rather than the capital providing another smaller house that could be part of the Trust with a lifetime interest. A change to the original Will and the wife’s wishes. It does seem unusual.

On the basis of what has been said – that no action was taken in the estate until 2021 when the husband wanted the house sold – the executors and/or trustees are unlikely to have exercised any of their powers to give any beneficiary a right of occupation in the property, so that s.225 TCGA 1992 would not appear to apply to exempt the gain on sale. Even if a life interest was appointed to the husband before sale, this would have very limited effect as the gain would be time apportioned over the entire period with only a few months’ worth of main residence relief being available. Still, better something than nothing.

This highlights the difficulties that invariably arise when, for whatever reason, no action is taken to administer an estate making what could have been a very straightforward administration unduly complicated. If the family had thought that by doing nothing they would “save a few bob” they may well now be ruing such short-sightedness.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

Are you saying that if executors of a Will do not actually take action, then the wishes of the deceased and the Trust can be ignored in law?

The fact that her wishes were that the husband may remain in the property until his death backs up the deceased wishes that the property was in fact gifted to the beneficiaries in Trust. How is it possible then for the husband to now claim 50% of the property that rightfully belongs to the beneficiaries.?

If the executors do nothing, they are as accountable for their inaction as they are for any actions they might take, unless they have renounced the office of executor in a timely manner without having intermeddled.

But, yes, executors and trustees can frustrate the wishes of the settlor/testator.

And no, the trust cannot be ignored. The question then is who is there to enforce the trust.

In the case that gave rise to this exchange, without knowing the terms of the trust in the will, we cannot be certain of the rights of the individuals involved. If the more topical form of testamentary discretionary trust, the husband and the deceased’s daughter are amongst the beneficiaries in whose favour the executors and/or trustees may appoint income and/or capital. In which case, the discretion could be exercised to appoint the property out to the husband and his step-daughter equally, freed from the trusts. It would then be for any of the other beneficiaries, should they feel the discretion has been inappropriately exercised, to challenge it.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals


Thank you Paul, it has helped me clarify this.

I had not really understood this way of getting round the wishes made in a Will and do hope that the Step-Daughter has been fully and correctly advised of her rights being changed from her mothers Will. From what has been said it would seem that she would be unlikely to give away 50% of her inheritance so easily.