I have a trust that was marketed as a property protection trust whereby the Settlor settled his residence into the trust and granted himself an Interest in Possession followed by discretionary trusts after his death. The trust is a Relevant Property Trust and still within the first 10 years (just).
There was no CGT on the way into the trust due to PPR relief. No need for holdover relief to be claimed and it couldn’t be anyway because the trust was Settlor-interested.
The Settlor died 3 years ago and the Trustees are only just selling the property. There is a CGT liability most of which is exempted by the PPR relief due as a result of the Settlor’s occupation of the property during his lifetime.
I appreciate that PPR relief and holdover relief do not usually mix, but can the Trustees appoint out the property to the beneficiaries prior to sale and claim:
(i) the PPR relief on the majority of the gains; and
(ii) holdover relief on the gains not covered by the PPR relief;
with the effect that the beneficiaries can then put their annual allowances against the held over gains on what is then a sale of the property by them?
Any thoughts gratefully received. Many thanks
In case it needs clarification, I was envisaging there being two events for CGT purposes.
an appointment out of the trust to the beneficiaries absolutely
The trustees would claim PPR relief apportioned for the period of ownership.
The trustees would make a holdover claim for the balance of the gain.
the property would then be sold as bare trustees, with the remaining gains being assessed on the individual beneficiaries.
Although hold-over relief is unavailable on the way in (ss260(1) and s169B) it is available on the way out. The held over gain is “the chargeable gain” otherwise accruing: s.260(4). PPR reduces the chargeable gain by the amount of relief: ss223(1) and 225 (1).
The period of ownership is that of the trustees, so if the PPR conditions have been fully satisfied during that period, full PPR will be due so no gain to hold over. Here there will apparently be a partially chargeable gain relating to the post-death period less 9 months. That gain can be held over if the transferees are UK resident and they can dispose of the interest transferred to them using their annual exempt amount. That disposal will capture the held over gain plus any increase in the gain since the transfer.