An overseas Qualifying Interest in Possession trust has owned UK commercial property since 2000.
The trustees now intend to distribute the property to the life tenant and subsequently wind up the trust.
Non-business asset gift relief should be available for any gains arising on the trustees after April 2019, in accordance with the provisions under s260(6ZA) onwards.
However, would s260 relief also apply to capital gains attributed to the beneficiary under s87 in respect of pre-2019 gains, and on what grounds this would be possible?
The asset is situated in the UK. It is not therefore “excluded property” even if the settlor and beneficiary with the QIIP are non-domiciled. So the IHT settlement rules apply to it.
s260 TCGA requires that the disposal or deemed disposal be a chargeable transfer for IHT. The termination of a QIIP is not such if the asset is appointed to the owner of it: s53(2) IHTA. So the essential condition of hold-over relief is not satisfied: s260 (1)(a) and (2)(a). You do not get into (6ZA) onwards or s261ZA. Had the trust been an RPT the distribution and termination would have been a chargeable transfer:s2(3) IHTA
HMRC seem to accept that in principle a s87 attributed gain can be eligible for hold-over but only when that relief is itself available.
“The usual reliefs from Capital Gains Tax may be given subject to the conditions for those reliefs”: CG38610.
For the avoidance of doubt, this is not an EPT as the Settlor was a UK domiciliary at the point of settlement.
Noted re the s260. In this case, suppose s165 was to apply as the property was an agricultural property that was run commercially and met the relevant conditions.
Given the above, it appears the deferral should apply to the pre-2019 element.
BPR and APR are reliefs which reduce the value of a TOV. They remain in principle chargeable transfers. They are not exemptions within s.2(1) IHTA. This must be so where 100% relief is due as it would be wholly illogical for a transfer attracting only 50% to be a LCT. IHTM is not very clear on this. It is more preoccupied with qualifying conditions. 25131 confirms how the relief operates for BPR (but no comment on the LCT status) point and APR doesn’t even bother with that. Tunnel Vision means that there is no cross reference to hold-over relief for CGT.
A distribution from a non-EP RPT of qualifying property would be a CLT for hold-over relief under s260… It could apply as you say to a termination of a QIIP if it qualified as a business asset: Part 1 Sch 7 TCGA. In both cases regardless of size of the otherwise chargeable gain. Hold-over is all or nothing and there might be cases where due to the size of the gain it is not advantageous e.g. within the Annual Exemption (if that survives the Budget!)