Advancement to Life Tenant absolutely

Hello everyone, hope you are all keeping well.

Could I just check whether there are any problems with advancing capital to the Life Tenant/wife out of an IPDI trust after the two year anniversary of settlor’s death. My client is adamant she wants to get rid of the Trust and her co-Trustee (also the remainder man) is happy to do so (against my advice).

This was a straightforward IPDI for wife, then absolutely to daughter.

My concern is that we are past the two year anniversary and I just wanted to check there would be no adverse tax consequences or problems transferring her husband’s full nil rate band on her death. The only asset in the trust was late husband’s half share of the matrimonial home where she is now living.

Also is it a problem that other than her there is only one other Trustee?

Many thanks in advance.

Kind regards
Deborah Wise

This can only be done if:

  1.  The trustees have power to advance capital to the life tenant; or
  2.  The daughter’s interest in remainder is vested and she assigns such interest to the life tenant with a view to the 2 interests merging.

If the gift to the daughter is subject to any contingency, such as her surviving the life tenant, then all potential beneficiaries would need to be party to any assignment if it were to do as the “client” wants. If there are potebntially minor or unborn beneficiaries, that may put a stop on any arrangement.

If an arrangement using (2) were to be considered, the daughter (ad any other beneficiary) should take their own independent legal advice on the situation.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

If it’s an IPDI the two years are irrelevant (only applies to relevant property trusts). She is already deemed to own the underlying capital. I assume the trustees have the power to advance capital to her under the terms of the trust? Whether or not having only one other trustee is a problem depends on the admin provisions that apply to the Will.

Lorna Sansom
Blandy & Blandy LLP

No, shouldn’t be any problem.
The distribution is a disposal for CGT but it sounds as though it would be covered by PPR. The trustees will have to claim the PPR, it is not awarded automatically.
I don’t see any problem with the limited number of trustees.
Andrew Goodman
Osborne Clarke LLP

Provided there is no requirement for the daughter to survive the mother, I see no difficulties arising if mother’s life interest is enlarged into an absolute interest in the trust fund, which I note comprises his one half share in the home. The husband’s transferable NRB and his transferable RNRB should be available when mother dies. No CGT implications either.

Patrick Moroney

The husband’s NRB should still be available for transfer. As the two-year period post death has passed then IHTA 1984 s 142 is not in point (as is neither s 144 due to the IPDI).

No CGT or IHT consequences should arise.

Two trustees are fine; easier to achieve unanimity and for administration purposes.

Malcolm Finney

Picking up on Andrew Goodman’s point. “The trustees will have to claim the PPR, it is not awarded automatically…” I wonder if someone could please clarify how this is done in practice. What exactly are the mechanics. Can the trustees simply write to HM Revenue & Customs; does there have to be a trust registration reference number or anything?

Vincent Oakley

Unfortunately I believe the only way that trustees can claim PPR is to register the trust with HMRC via the trusts registration service and then submit a tax return including details of the gain and a claim for PPR.

Diana Smart
Gordons LLP


RE TCGA 1992 s 225, the trustees must lodge a claim for private residence relief.

The CGT Supplementary Pages (SA 108) must be completed.

Box 8 should contain the relevant code which in this case is “PRR” (see SA 108 Notes page CGN 3; note also code “LET”).

In addition, at the top of the SA 108 Supplementary pages it states “You must enclose your computations, including details of each gain or loss, as well as filling in the boxes”. Thus, when attaching the relevant computation on which should be shown the quantum of the relief the trustees wish to claim it should include a statement along the lines of “PRR is claimed for an amount of £……” and include such a statement in Box 54.

Malcolm Finney

Yes I wondered this too

Deborah Wise

My earlier response related to individuals not trustees claiming private residence relief (PRR). A claim for PRR under TCGA 1992 s 225 needs to be formally made (ie is not automatic) and is made on SA 905 (Supplementary Pages accompanying SA 900); see page TCN 3 Column G of SA 905.

I note Diana’s comment. Trustees are required to obtain a Unique Taxpayer Reference (UTR) to enable filing the appropriate tax return. Historically, this was done by completing Form 41G. Thus, in order for the trustees to file a claim for PRR requires trust registration.

Malcolm Finney

I would try claiming the private residence relief by letter. Claims are required to be made in returns where HMRC have given notice to make a return, but that will not be the case here. I have a recollection of dealing with it that way once.

Malcolm Gunn

M B Gunn & Co Ltd

Thanks everyone. That information is really helpful

Vincent Oakley