I am dealing with an elderly couple ( H & W in their late 80’s and late 70s and both are mentally sound). They transferred 25% of the main residence (jointly held) to a family trust nine years back. No changes to land registrary record.
Settlors and two adult children are the trustees of the trust.
Beneficiaries are two adult children and remoter issues.
Clients live in the property and paid rent of £500 P.M to the trust for several years and increased to £550 two years back. ( Not market rent). Trust tax returns were filed and trust income was distributed among the adult children.
The value of the whole property at the time they transferred to the Trust was around £750K.
The trustees now considering closing the Trust and either transferring the property back to settlors or passing it to adult children as the trust is approaching for 10-year anniversary charge in a few months.
Since clients, total estate far exceeds free allowances and CGT complications (probably no hold over relief) when assets transfer back to settlors. My understanding is better solution would be to pass it to beneficiaries. Please correct me if this is wrong.
Also, the Trust register is not updated. I am planning to update this.
Could members explain any legal implications that will arise if the property is passed it to beneficiaries where market rent was not paid? Also, I assume there can be CGT at the Trust rate when the property is transferred to beneficiaries since holdover relief can’t be claimed.
Any tax implications if one or both settlors die within 7 years after the property is distributed from the trust as the property may be subject to GOBR since market rent was not paid to the trust?