Holding Over Twice?

If a gain is held-over upon the settlement of an asset into a relevant property trust, is it possible to re-hold-over the same gain (plus any that has accrued in the meantime) on the later appointment of that same asset out to a beneficiary?

It doesn’t feel like this should be possible but I cannot see anything in Practical Law’s guidance or HMRC’s manual which says that it is not.

D Andrew Jones
Hugh James

Yes, it’s possible.

TCGA 1992 ss 165 and 260 are relevant here.

Any gain arising on a settlement of a chargeable asset on a relevant property trust can be held-over and any gain arising as and when the trustees appoint the asset out can also be held over (the latter gain would include the original gain on settlement plus any accrued gain arising whilst held in the trust).

Hold-over not possible if the trust is settlor interested on initial settlement but gain arising on appointments out of such a trust can be held over.

Malcolm Finney

If the only reason for transferring the asset to the trust in the first place is so that the gain can be held over by S (settlor) into the trust and then held over again on a transfer out of the trust to an individual beneficiary (B), HMRC might seek to argue that Ramsay applies and that one should look at the situation in the round and treat it as if the asset has been transferred direct from S to B (in which case s260 TCGA holdover would not be available). Whilst there is no strict time limit on this, if the asset were transferred in and out within two years, I would expect HMRC to look at it very closely.

Paul Davidoff
New Quadrant Partners Ltd

Many thanks, both. Yes, the situation Paul describes is the one that caused me to worry whether a second hold-over would be available. On basic principles it seems possible to have a hold-over on the way in and a hold-over on the way out. But if that is the case why cannot I, for example, give a property to an adult son (which would normally suffer CGT without any hold-over) by the method of settling the property onto a discretionary trust, after which the trustees appoint the property to the son outright (suffering no CGT with a held-over gain).

Thankfully the case on my desk does not have those features! Many thanks for your help.

I acknowledge that advisers are in a difficult position in predicting the effect of GAAR, not least given the possible censorious attitude of a professional body with its infallible tax morality PCRT (or is it PCR?) test. Also HMRC, at least at lower levels, can make things up as they go along.

But the “approved” example in D19 of the GAAR Guidance is very instructive as to the likely theological approach of the Self-Appointed Heresy Commission. Ramsay if it operates at all does so outside of the GAAR as a judicial apostasy sniff test, similarly somewhat unpredictable in outcome.

But the Ramsay/BMBF approach is not “a broad spectrum antibiotic” to “kill off all tax avoidance schemes, whatever the tax and whatever the relevant statutory provisions” (per Lord Hoffmann in Westmoreland).

The key to successful double CGT holdover via a DT is not just the tax adviser’s “decent interval”, though the longer the better, but the genuine independence or otherwise of the trustees in making the decision to appoint out; and the context, because Ramsay is now regarded as just a facet of purposive or contextual statutory interpretation.

If there is a pressing background reason/intention for the asset to pass promptly from the settlor to the appointee, making the DT a mere fiscal sleight of hand, it may be regarded as a direct disposal. The trustees’ hanging on to it for even a lengthy period may not break the chain if the ultimate outcome is precisely what all the parties always envisaged, especially if an adviser on the plain vanilla proposal has come up with the cute alternative necromancy (nudge, nudge, know what I mean?). Even a judge may cotton on.

Jack Harper