Life interest trust - CGT query

Trusts Discussion
1

We act in an estate administration and associated trust.

The deceased (D) owned 50% of his home outright. The deceased occupied the other 50% as life tenant of a trust created in the Will of his late wife when she died in 2013. Since his death the property is unoccupied.

When D died the underlying value of the life interest trust was aggregated with his own estate. There was no IHT on his death. The whole property passes to the same 4 beneficiaries: this is because the remaindermen of the trust and the residuary beneficiaries under D’s Will are the same individuals.

The property is being sold. At the date of D’s death, the whole property was valued at £250,000. It is being sold for £185,000, so at a substantial loss of £65,000. (NB: The probate valuation was carried out by local agents and considered accurate at the time, however the property was on the market for a long time and the family decided to lower the price to find a buyer).

We are considering CGT.

In relation to the 50% in D’s estate the position is straightforward. The probate value of the 50% share in the estate was £125,000. It is due to be sold for £92,500. As a result, there is a loss, and no CGT reporting is required for the estate.

What is the position in relation to the 50% in the trust following D’s death?

- Is the base cost for CGT on disposal the value of the 50% share uplifted to the date of the life tenant’s death (here £125,000)? (Rather than the value in 2013 when the trust was set up).

- Do the trustees hold the 50% share on bare trust for the remaindermen from the date of the life tenant’s death, so that on a subsequent sale, it would fall on the remaindermen to report any liability in their personal tax returns? In this case, if it is correct that the base value is the value at the life tenant’s death, there will be a loss on sale. Obviously it is for them to take their own advice, but in overview, if the remaindermen do not otherwise need to submit a tax return (say if their personal circumstances do not call for it) would they still need to submit a nil return in relation to this sale?

Thank you.

2

My only comment on your analysis is that for CGT each of the trustees and the deceased’s PRs are tenants in common so the revaluation of base cost to market value in each case is to be discounted for unmarketability. The 4 beneficiaries therefore acquire a quarter of each half reflecting the discount. CG74200 goes into this in principle but regrettably does not have an example in which the “entirety” is itself an undivided share. I assume that the 4 do become absolutely entitled within s.71(1) TCGA as remaindermen to the life interest of the deceased and as specific legatees of his estate or as transferees by appropriation so that they take as “legatees” within s.62 (4) TCGA.

Jack Harper

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| RR1 Rebecca Rolfe
21 January |

  • | - |

We act in an estate administration and associated trust.

The deceased (D) owned 50% of his home outright. The deceased occupied the other 50% as life tenant of a trust created in the Will of his late wife when she died in 2013. Since his death the property is unoccupied.

When D died the underlying value of the life interest trust was aggregated with his own estate. There was no IHT on his death. The whole property passes to the same 4 beneficiaries: this is because the remaindermen of the trust and the residuary beneficiaries under D’s Will are the same individuals.

The property is being sold. At the date of D’s death, the whole property was valued at £250,000. It is being sold for £185,000, so at a substantial loss of £65,000. (NB: The probate valuation was carried out by local agents and considered accurate at the time, however the property was on the market for a long time and the family decided to lower the price to find a buyer).

We are considering CGT.

In relation to the 50% in D’s estate the position is straightforward. The probate value of the 50% share in the estate was £125,000. It is due to be sold for £92,500. As a result, there is a loss, and no CGT reporting is required for the estate.

What is the position in relation to the 50% in the trust following D’s death?

  • Is the base cost for CGT on disposal the value of the 50% share uplifted to the date of the life tenant’s death (here ÂŁ125,000)? (Rather than the value in 2013 when the trust was set up).

  • Do the trustees hold the 50% share on bare trust for the remaindermen from the date of the life tenant’s death, so that on a subsequent sale, it would fall on the remaindermen to report any liability in their personal tax returns? In this case, if it is correct that the base value is the value at the life tenant’s death, there will be a loss on sale. Obviously it is for them to take their own advice, but in overview, if the remaindermen do not otherwise need to submit a tax return (say if their personal circumstances do not call for it) would they still need to submit a nil return in relation to this sale?

Thank you.

3

CGT position for Wife’s half the same as for Husband’s half .. free uplift on Husband’s death.

Life interests between spouses are IHT and CGT neutral.

No reporting requirement at all on either share.

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