Settlor created a flexible life interest trust settling their interest in their property in trust for their children with a life interest for the settlor. This was established in 2017. Settlor now wants to unwind the trust for various reasons.
The trust deed seems to allow this and so a deed of appointment can be prepared to be signed by all trustees.
When it comes to tax, firstly the property is under the NRB so no IHT consequence to be concerned with? Secondly then CGT - settlor is not sure what the value of the property was in 2017. Will the settlor need to obtain two valuations now one for 2017 and one for this year to establish whether there has been any gain? For this purpose would estate agent valuations be acceptable? The interest in the property that the settlor wants appointed out to her is her only and main residence therefore PPR would apply. I understand that trustees have to claim PPR? The trust is registered on TRS but does not file tax returns as this has never been necessary. Would the trust now have to register to file a tax return to claim PPR or if not how would you go about notifying HMRC of the claim for PPR, that is assuming there has been a gain since 2017?
The transfer into an RPT settlement was a CLT, presumably within the NRB and the settlor having a nil cumulation. So no tax then and as the trust would be entitled to a full NRB none on the way out if its value is still within that amount. (There is no return to settlor exemption). But it was also a GROB. So there will be a deemed PET. If he does not survive 7 years that will affect any subsequent lifetime gifts and his estate at death. The taxable value will not change so will attract the nil rate band unless he has a positive cumulation at his death. Double charge relief will apply but probably the charge on death will be the higher.
2 CGT
Although the transfers in and out would be chargeable transfers, despite the nil rate, hold-over relief is not available because the trust is self-interested. But if the facts are favourable PPRR should be available on each occasion. The trustees must claim it so should re-register on TRS as taxable and make a return. As to the in-year return:
CG-APP18-140 says:
“There is no requirement for a UK resident trust to file a CGT on UK property return if there is no notional CGT liability in respect of a disposal.
However, trustees may choose to file a UK property return if they wish to make a claim for relief, such as private residence relief. A letter detailing the claim can be uploaded as an attachment to the online return or enclosed with the CGT on UK property paper return. If a Trust and Estate tax return is subsequently required, the reference of the CGT on UK property return where the claim was originally submitted can be provided in the ‘Additional information’ box.”
The settlor has made a gift with reservation with respect to the interest in the property settled (not possible to argue that the settlement constituted a carve-out arrangement). No IHT on CLT on creation of the trust as value falls within NRB (and no earlier material CLTs by the settlor). A PET will also be deemed to have been made.
CGT hold-over relief was not possible (as trust settlor interested for CGT) on initial settlement. But PPR may apply. Subsequent appointment out gives rise to a CGT charge (based on gain growth whilst property was held in trust). However, if TCGA 1992 s 225 is satisfied (trustee claim necessary) principle private residence relief is available.
Probably estate valuation sufficient although RICs valuations often advised.
The newly introduced 60 day reporting deadline is not in point if PPR applies.Thus, not clear in what form and how a claim by the trustees is made?
Isn’t this a non sequitur? How can a claim for a relief that eliminates all the tax that would otherwise be due convert a non-taxable trust into a taxable one?
HMRC’s suggestion in CG-APP18 is daft and ignores HMRC’s charter promise to keep compliance costs to a minimum. A claim must be drafted and sent to HMRC. An envelope and a stamp are a lot cheaper than getting the trustees’ advisers to go through the palaver of making an on-line CGT return solely as a means of transmitting the claim to HMRC (and HMRC only receive a facsimile of the claim rather than the claim per se).
A CGT return (or an SA return) will require the gain to be computed, but HMRC say at CG4206 that in most cases no computation is required.
S225(1) says that relief is not due to trustees unless they claim it. So before the claim is made the gain is taxable. As far as a FA 2019 return is concerned the trustees are entitled to assume the claim will be made.
SACM3030 states HMRC’s practice on how they think claims should be made. I have no idea what happens if they receive a claim which must be made in a return but is made as you suggest, unless it fits into their examples. Often it will fit into the first as the trustees may not receive a notice if they are not and have not previously been otherwise taxable. I suggest they ought to make the claim your way in time to comply with s7 TMA. I would have thought that a voluntary return under s12D was no greater nuisance and confers the protection of s29 (2)-(5).
I am no apologist for TRS but the Regs are not tax legislation. If a claim has not been made by the due date for registering a taxable trust then it must surely be in default (see first paragraph above). The deadlines are in Reg 45(3) but while (a) and (b) are clear (c) with its 90 day period is not, or not to me at least. What is the date of becoming liable? Is it the date of disposal or the end of the tax year of disposal? It surely cannot be January 31 after the tax year end. I have looked in the obvious places in the TRSM but am no wiser. It ought to be clearly stated in 40000. Perhaps someone knows. The online guidance is a bit clearer but introduces from left field a 5 October deadline! Many trusts that have a once-off gain will already be registered as non-taxable so must only provide info not already filed, such as a statement of assets. How big a pain is that?I have no idea whether penalties would be charged but surely not if the claim was ultimately made and accepted.
CG4206 says the trustees are required to file a return. Only a computation is waived if they assert full exemption. It does not say a standalone claim will do. As I have said how more difficult is it to file a return?
Jack Harper
jack:
The trustees must claim it so should re-register on TRS as taxable and make a return
Isn’t this a non sequitur? How can a claim for a relief that eliminates all the tax that would otherwise be due convert a non-taxable trust into a taxable one?
HMRC’s suggestion in CG-APP18 is daft and ignores HMRC’s charter promise to keep compliance costs to a minimum. A claim must be drafted and sent to HMRC. An envelope and a stamp are a lot cheaper than getting the trustees’ advisers to go through the palaver of making an on-line CGT return solely as a means of transmitting the claim to HMRC (and HMRC only receive a facsimile of the claim rather than the claim per se).
A CGT return (or an SA return) will require the gain to be computed, but HMRC say at CG4206 that in most cases no computation is required.
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Have no idea Ray. Not sure what I was thinking !!
jack: