A settlor sets up an IIP family trust with a nominal sum. The intention is to transfer her main residence into the trust with a life interest for her, but there is a mortgage on the property so she can’t transfer title to the trustees. So she signs a later declaration of trust stating that she holds the property on trust, subject to the mortgage, for the trustees of the family trust. Now she wants to repay the mortgage and end the trust arrangement so that the property remains in her sole name, essentially revoking the declaration of trust. She wants to know if she can simply tear up everything given that the property is in her name anyway. Or, is the obliged to follow through with the provisions of the declaration of trust and transfer the property to the trustees of the family trust and then the trustees can transfer back to her (with potential CGT consequences)? The property is well below the NRB and so there’s no worry about IHT.
Unless the declaration of trust contains a statement that it is revocable, it is irrevocable.
In which case, the property has been impressed with the trust and the settlor should not pretend otherwise.
On the basis that the settlor granted themselves a life interest, I believe the trustees would be entitled to claim main residence relief under s.225 TCGA 1992, so there should be no CGT consequences.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Just to supplement what Paul has said, there is no need to make a legal transfer of the property to the trustees, it has already been transferred in equity. The trustees need only advance or appoint the equitable interest back to her using whatever powers are available to them.
The trustees will need to formally claim the PPR.
Osborne Clarke LLP
Presumably two CGT disposals occur, namely, the initial transfer of the beneficial interest to the family trustees (but retaining legal title) and the subsequent transfer back made by the family trustees. TCGA 1992 s71 applies in both cases but presumably TCGA 1992 s 225 exempts each of the two gains as indicated by Paul and Andrew.
I concur. Many thanks.