A relatively new client, in 2012 transferred a half share of a rental property into a discretionary trust, it remained in trust until 2017, when the trustees appointed the interest in the property to the son, gain held over in, and out of the trust.
Rent was returned half each until 05.04.2019, when Dad started reporting 100%. Dad died June 2024.
Am I correct in thinking that it will be a Gift With Reservation for IHT as it was a discretionary trust.
If it was a settlor interested trust, no holdover would be available, but not GWROB under S102B FA 1986 (3).
“Am I correct in thinking that it will be a Gift With Reservation for IHT as it was a discretionary trust”
No, not necessarily. If the client is not a beneficiary under the DT then no reservation of benefit arises; even if the DT trustees have power to add the client as a beneficiary it does not follow the gift become a gift with reservation. If actually added, then a reservation of benefit arises.
If any gains on the appointments in and out of the DT qualified for CGT hold-over relief then the DT was not settlor-interested for CGT purposes.
If the DT was settlor interested no CGT hold-over would be possible wrt the gift into the DT but would be available on the appointment out of the DT. If the client was a beneficiary of the settlor interested DT then, as stated above, a reservation of benefit would in principle arise. However, FA 1986 s102B(3) appears to provide:protection from the reservation of benefit charge.
To avoid a GROB I suggest it is safest to provide that the power to add excludes the settlor. This also prevents the settlement rules applying and the transfer of assets abroad rules: INTM600940. The reasoning in Botnar is a concern even when the TOA rules are not in point; succession on intestacy is too remote but not much else. I also think it is safest to prevent the settlor having an interest for CGT hold-over relief. Apart from the GROB rules it may be safest also to exclude from the power a living spouse and civil partner and for CGT a dependent child.