A couple placed their respective half shares of their home in Oct 2007 (each share £262,500) on discretionary trust and in an attempt to unravel the trusts signed a deed of appointment, transferring the interests back to themselves just inside the ten year window in September 2022 when the value of each share increased to £450,000.
We are now attempting to wind up the “asset protection trust” and turning to the requirement to report via the IHT100. I was under the impression that any exit charge due in the first ten years of the trust (since October 2007) would be based on the value of the assets settled into the trust when they were gifted into the trust. As the value for each trust was £262,500 in October 2007, this was within their respective nil rate band allowances available and so there would have been no lifetime inheritance tax payable at the outset.
If there was no lifetime inheritance tax payable at the outset, then my understanding is that there should be no inheritance tax exit charge on the distribution of the property from the trust back to themselves as beneficiaries in the first ten years. However the accountant has advised that the exit charge is likely to be at least £10,000
Is the exit charge likely to be as much if there was no IHT going in and the appointment was within the 10 year anniversary?
I only just noticed that the date you quoted was 15 years after the settlement was created, so not within the initial 10 years at all. did you mean it was appointed out in 2017?
Hi Andrew , I made an earlier apology to confirm the creation date as (October) 2012 . The deed of appointment was signed September 2022. Therefore the appointment was just inside the ten year period. I assume that the IHT100 would still have to be completed and the appointment is not excepted or exempt . Many thanks for looking over this again.
Yes it seems odd that the CGT doesn’t scupper the planning as presumably s 260 TCGA would not be in point as the Trust sounds like it would fall as settlor interested. Only thing I can think is that the DT had a life interest carve out thus the house could qualify for PPR?
CGT can be a sizeable issue, I made the mistake once (on bad advice) to put a property into DT, claim CGT holdover relief and then distribute to a beneficiary for whom it was their sole property. When they sold PPR was denied.
It would be interesting to hear from Zingavenna how the issue of CGT was approached.
Yes you are correct NC33, the clients were beneficiaries of the trust and although settlor interested, we are claiming PPR in the SA900 - so there should be no CGT liability when the appointment out is made.
Yes Karl and Sirocco are correct. If the original transfer into the Trust claimed hold over relief under s260 then it is not possible to claim PPR now.
However, I assumed from the wording that the property was their PPR at the point of original transfer and therefore no hold over was claimed and PPR covered the original gain arising. In which case, as long as there was an entitlement to occupy under the terms of the trust satisfying s225 TCGA 1992 PPR will be due.
Again you are right NC33, there was no need to claim holdover on entry since they placed their homes into the trust so PPR covers the original gain and because it was settlor interested there was an entitlement to occupy making PPR available. many many thanks to all .