Distribution of property from a trust to as beneficiary

Hi,

A client of mine settled her property into trust for protective purposes in 2019. She continued to live in the property until she passed away earlier this year. She was the main beneficiary on the trust. The trustees were the settlor and a solicitor Trust Corporation. The remaining beneficiaries (the daughter and grandson) want to end the trust and sell the property. The solicitors have agreed to distribute the property directly to the daughter. The daughter owns her own property.

Are there any potential negative tax (CGT or other) implications to this course of action? I am presuming that PPR Relief can be utilised for the time that the settlor was living in the property up until her death? Is it better to get the trust to sell the property and then make a distribution of cash to the beneficiaries or to distribute the property to the daughter for her to sell personally - (this is the route the daughter prefers as the solicitor has hit her with exorbitant ongoing fees and she just wants to be rid of them as soon as possible)?

Any help/advice would be greatly appreciated.

David Park

It is difficult to tell without more information and one would want to sit down with the family and all of the facts (values of the assets in the trust, family circumstances, etc) and discuss the various options.

One thing that jumps out is that the daughter and grandson could ask the trust corporation to appoint them as trustees in place of the trust corporation and then they can take the trust forward without the exorbitant fees that you refer to. Having said that, they may still require ongoing legal advice and assistance with the trust (for which there would be a cost, but at least they would not be tied to a particular firm of solicitors).

Paul Davidoff
New Quadrant

Assuming it is a relevant property trust (I think it must be) then you have to consider whether there is any IHT exit charge. CGT holdover relief should also be available should it help.

The trust was created in lifetime and thus the occupation of the trust property by the settlor will not create a QIIP. The trust will therefore be a RPT for IHT purposes. No CGT hold-over relief would be available on settlement of the property. The death of the settlor will not give rise to any CGT uplift or any IHT consequences.

A subsequent sale of the trust property by the trustees (post the settlor’s death) will give rise to a CGT charge [at 28%] albeit with some relief under TCGA 1992 s225. On appointing the cash out to the beneficiary(ies) a possible IHT exit charge may arise (but no CGT charge).

Alternatively, if the trustees appoint the property out for sale by the beneficiary(ies) a CGT charge will arise on the part of the trustees (as above) with relief under TCGA 1992 s225. Where such relief is claimed CGT hold-over relief will not also be available. An IHT exit charge may also arise. Sale by the beneficiary(ies) will give rise to CGT charges at the marginal rates of the beneficiary(ies) [18/28%].

CGT exemptions will be available (different amounts).

Malcolm Finney

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Hi Malcolm,

Thank you for your input. It is most useful and appreciated.

Thank you also for jumping in on my other topic discussing the TRNB for the estate from 1970 - I was wondering what I might have done wrong!

David

Hi Andrew,

Thank you for this. I should have stated that the property is valued at only £120,000-£150,000 so should have no periodic or exit charges.

David

Hi Paul,

Thank you for your input. The property is worth around £120,000-£150,000 and the daughter wants to sell and use the proceeds for her own home improvements.

The solicitors took over from the previous firm who went into administration. They have already charged more to review the trust than it cost to set up in the first place, and are not particularly helpful from an advisory point of view either.

My initial thoughts were to do as you suggest and remove the solicitors and appoint the daughter and grandson as trustees. I’ll talk them through their options.

David

Hi all,

Thank you for all these responses - very helpful.

Beyond this, if the grandson were to be appointed as Trustee, could this affect his ability to obtain First Time Buyers Relief (FTBR) (he is also a discretionary beneficiary of the trust) on a personal purchase at some point in the future?

I have done some research and found this:https://www.step.org/system/files/media/files/2023-08/HMRC-STEP.pdf

My understanding from the exchange between STEP and HMRC is that simply being a Trustee and a discretionary beneficiary (he has not benefited form the Trust to date if this is relevant) of a Trust holding residential property would not preclude FTBR being available to the Trustee for his own personal purchase of property at some point in the future.

Would my colleagues here concur with that assessment?

Yes, I would agree with it.

Malcolm Finney