I have the following scenario.
A died leaving his property in trust for his Wife (W) to reside in the property for the remainder of her life. Subject to that the property was left to her son (A). Son (A) now wishes to sell his reversionary interest to son (B). All parties are UK resident.
I am trying to consider the tax consequences.
IHT – I do not believe that there are any consequences for W, the Trust or A. But the reversion will form part of son B’s estate for future IHT as it was acquired by him for consideration.
In regards to the residence nil rate band (RNRB) and carried forward RNRB I believe on W’s death she still have an IPDI and as the trust still provides that a lineal descendant is” beneficially entitled” (as per s8J(5)) the RNRB is still available. However, I am not totally comfortable with this.
I do not believe that the disposal of the reversionary interest will give rise to a CGT liability for any of the parties. But the consideration paid by B means that on any future sale of the property this will be part of his acquisition value.
My issue is what happens when he becomes absolutely entitled? I do not believe there is a CGT issue for the trustees, but s76(2) TCGA 1992 suggests that there is in effect a deemed disposal by B of his reversionary interest, the consideration being the obtaining of the settled property. This raises the questions (i) what is the consideration for obtaining the settled property? Is it the value of the property at W’s death? (ii) If there is a deemed disposal for CGT by B, then is his acquisition value moving forwards the value of the property at W’s death?
I would be interested in receiving peoples comments.
Horwood and James