If a property with a large gain is transferred to a discretionary trust the gain could be held over under s260.
But if one of the beneficiaries of the DT was a limited company controlled and owned by the settled by the company would preclude holdover relief on the grounds it is a settlor interested trust.
The relevant definition is in s169F TCGA 1992. A company owned/controlled by the settlor of the DT being an eligible beneficiary of it does not make the settlement settlor-interested in specific terms but subsections (2)-(3A) are very wide.
If the trustees could use trust property to fund the company so that it in turn could benefit the settlor or spouse or dependent children HMRC may well take the view that these operations were not unconnected. While It might be a matter of doubt whether that is a real possibility before it actually happens (the statutory words are " will or may become payable or applicable…in any circumstances whatsoever") HMRC may argue that, if it has happened, it is caught by these wide words and if not then the Ramsay doctrine or the GAAR apply. If the company was set up for the purpose and/or had no other substantive business they might succeed.
Also s169B prohibits an “arrangement” that the settlor will or may acquire an interest at a later date and the definition in s169G is wide enough to drag in such a company. Note that an arrangement does not have to be legally enforceable so the interposition of trustees’ discretion, even if they are peerlessly independent, may not avail.
Note also that under s169C there can be a clawback of relief if within 6 years the settlor acquires an interest in the settlement. For example at a later by means a trust distribution followed by a company distribution or provision of benefit.
It is an unusual request in my experience for a company to be a beneficiary of a DT. There may be a lot of tax at stake and denial of relief or clawback
may result in interest and penalties as well as tax. I would try to dissuade a client from contemplating use of a company in the above way unless this risk is acceptable.
Jack Harper
Many thanks for this.
The reason for the question was because I had heard suggested that it was a way to get a property into a company so that full interest deductions could be made.
So property owner would set up a DT one of the beneficiaries would be company owned by owner.
No SDLT would be payable (unlike if individual transferred property to company)
CGT could be held over.
Property would then be appointed to company. Again no SDLT, and CGT could be held over.
Obviously there is the Ramsey principle but I had thought the gain could not be held over because the trust was settlor interested.
I could see HMRC living with a trust that distributed to a corporate beneficiary with an established business, trade or investments, but as a scheme to wash SDLT it is like a red rag to a bull. Anyway there is no relief under s260 for a disposal to a company so if you get hold over on the way in there is none on the way out.
As to SDLT s75A provides:
“(1) This section applies where—
(a)one person (V) disposes of a chargeable interest and another person (P) acquires either it or a chargeable interest deriving from it,
(b)a number of transactions (including the disposal and acquisition) are involved in connection with the disposal and acquisition (“the scheme transactions”), and
(c)the sum of the amounts of stamp duty land tax payable in respect of the scheme transactions is less than the amount that would be payable on a notional land transaction effecting the acquisition of V’s chargeable interest by P on its disposal by V.”
Here V is the Settlor and P is the company and instead of no SDLT on the gift to the trust or the subsequent distribution to the company, transactions within (1)(b), the SDLT within (1)(c) would be chargeable in full as on a direct gift to the company. Although the company gave no consideration market value consideration is imputed by s53 FA 2003 if the settlor is connected with the company, as seems extremely likely (see s1122 CTA 2010)
Jack Harper