We are assisting with the estate of someone who had a lifetime discretionary settlement. The trust was created in 2014 and the value of the trust property (the settlor’s main residence) was £230,000. The trust was not settlor excluded and, therefore, upon her death this year the value of the property (valued at probate at £300,000) fell into her estate for IHT purposes.
The trustees are looking to either sell the property or appoint the trust fund to the beneficiaries in equal shares.
The question of CGT has arisen: in terms of the disposal, is the base cost the probate value of £300,000 or the value at the time the settlement was created (£230,000). Would the reply be different if the settlor had been a life tenant of the lifetime trust as opposed to one of a number of discretionary beneficiaries?
As a settlor interested trust hold over relief for CGT purposes would not have been possible on trust set up. MV would apply to the property transferred at that date (ie 230k) ie trustees acquired property at this value. CGT liability at that time unlikely if the property transferred had been the settlor’s primary residence.
There is no CGT uplift on settlor’s death.
If the trustees sell the property their base cost will be 230k (see above). Any CGT liability on any capital gain made will in principle be subject to the 28% rate of CGT. However, if TCGA 1992 s225 is satisfied no CGT charge will arise.
If the settlor had been the life tenant the CGT position would be as above.
If the trustees appoint the property out in equal shares to the beneficiaries prior to sale by the latter
relief under TCGA 1992 s 225 is likely to apply to any gain made by the trustees. Subsequent sales by the beneficiaries should precipitate limited if any CGT charge as their respective sales will no doubt be made at a not dissimilar value to the values at which their interests were acquired from the trustees.