Lifetime settlement in property by husband and wife and CGT implications

Husband and wife created lifetime settlements over each of their individual shares in the property. The settlements provided for a Life Interest Trust only for themselves (as Settlors) and on their respective deaths, the trusts convert into Discretionary Trusts.

The Husband died in 2010 and no action was taken in respect of the trust at all.

Would a CGT liability arise if a the husbands trust (now a Discretionary Trust) was varied to convert it into a Life Interest Trust for the benefit of the Wife, or could she claim PPR relief?

The situation is muddled further in that the husband and wife’s son also lives in the property (and always has) and owns a 20% share in the property, whilst the trust each hold a 40% share.

Advice is greatly appreciated!

Not sure there are any CGT implications; the life interests appointed to themselves are non-qualifying and and life interest appointed under the DTs will again be non-qualifying.

A CGT charge arises in principle on each of H and W settling their respective interests in the family home based on MV. However, PPR should apply with respect to any capital gain (subject to noting the settlor interested nature of each trust if PPR is claimed means no subsequent hold-over relief may be claimed).

On H’s death in 2010 there is no automatic CGT uplift in the value of the trust property and the property remains settled for CGT purposes (ie held on DT).

If DT trustees appoint a life interest to W (non-qualifying) no CGT charge arises. If and when DT sells property a CGT charge will arise and possibly PPR may be available.

Malcolm Finney

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