Main residence question

Hi All

If a main residence is put into a discretionary trust am I right in thinking there would be no capital gains tax to pay as the settlors had always lived at the property. Am I right the that it would be when the trustees disposed of the property that it would attract the capital gains liability and then their maybe private residence relief to use against this if the settlors continued to live at the property for rest of their lives?

The property would be disposed by the trustees at the base value of the day it went into the trust therefore approx £130,000 which is why it won’t attract IHT, although as they still live there is would probably be included in their estate?

Thank you

The gain on the disposal of the residence to the trustees will qualify for ‘private residence relief’ if it has been the settlors’ main residence throughout their ownership.

A later disposal by the trustees could qualify for ‘private residence relief’ if the settlors reside in the property under the terms of the trust. The availability of the relief depends on the terms of the trust and/or the actions of the trustees.

The settlors and the trustees are ‘connected persons’ and the transfer will be treated as taking place at open market value at the time of transfer.

As the settlors will be beneficiaries of the trust the IHT ‘reservation of benefit’ provisions will apply and the value of the trust assets will be taken into account in determining the IHT liability on the death of a settlor.

There are other, possibly adverse, tax consequences of this course of action and specialist advice is essential.

Hi Gerry

Thank you for your reply.

Should the private residence relief be applied for with HMRC when the trust is set up or is it just automatic as it is their main residence?

As for the market value that would be as at the date it was put into the trust not the value at the date it was originally bought by the settlors?

Am I right in thinking that these type of trusts now need to be registered at HMRC on the TRS or is it exempt?

Thank you

There is no need for a formal claim to the relief but evidence to support a claim should be retained.

The transfer takes place at market value on the date the property was transferred to the trustees.

The trust needs to be registered under TRS.

There are many issues to be considered so professional advice is essential.

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Hi Gerry

Thank you, I will look at the professional advice but please could advise what type of issues you mean and whether these are in relation to tax so I know what professional advice is required.

Thank you

You will need to engage the services of a solicitor.

The issues, in my view, fall into five categories;

  1. The terms of the trust. What powers (and duties) will the trustees have? Who will be the beneficiaries? What is to happen to the proceeds when the house is sold?

  2. Transfer of legal ownership from the settlors to the trustees.

  3. Reporting duties under TRS

  4. Ownership by the trustees - insurance, repairs/maintenance etc.

  5. Tax. Our current system is subject to regular change. Changes need to be monitored

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Sally, this is not the type of medium which can identify all the issues. You need a consultation with a professional or, if you are one yourself, someone in the relevant field if it is not your own. A solicitor or accountant that understands trusts and related tax aspects. It is a complex and specialist area. The right adviser will help you to go through the facts and objectives. Clients do not always know what information is needed and a good adviser will know what questions to ask.

I used to tease my clients by threatening to install an industrial-size juice press with a view to putting them in it and extracting all the facts, every single drop. Someone less cantankerous than I will make the process pain-free, save for the fee. Most of my clients were more intelligent than I and could have done my job better had they chosen to go down that route. But even for them this would definitely not be a suitable DIY project. Setting up trusts is expensive and entails accepting ongoing costs of advice on managing and one day terminating them. If that is not worthwhile to achieve the benefits you hope for, you should not proceed and a good adviser will warn you about that. Like flying a plane when bad weather is forecast, it is better to be down here looking up than up there looking down.

Jack Harper

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Thank you for your reply. I do intend to take professional advice I was just researching which brought up questions for me that I wanted help with before I wasted any one’s time and my money on doing something that was not suitable or I cannot afford:

Scoob / Sally

Once again I would say this forum is not for free advice for lay people. As far as I am aware no one has quoted you for the initial and ongoing costs on here so you still do not know whether you can “afford” it.

Neither can anyone here say whether what you are looking to do is the right thing for you as they do not know your circumstances.

You should just find a solicitor who will / should have an initial chat with you for no cost. This will allow them to understand your aims and circumstances, and what any advice/implementation is likely to cost, now and for any ongoing compliance. You can then decide whether you wish to pursue the matter.

You may wish to try looking on here for a suitable solicitor


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Hi Sara
Thank you for replying.

I have already enquired about fees to do the trust which I am aware are expensive and I was not asking for free advice to set one up. I was purely asking some questions after doing some research into discretionary trusts. I know I can afford to set one up it was the initial cost of any capital gains tax due putting the property into a trust that I was checking as I initially thought I may have this to pay which would be alot of money that I may not have. The running of the trust I will get advice on.

I have full intentions of seeking professional advice as would not have imagined a lay person could set up a diy trust and know there would be complex issues to discuss.

I came across this forum when researching so asked some questions to try to see if how I was reading hmrc manual was what it meant in relation to reliefs etc.

Thank you

Hi Gerry

I just wanted to say thank you for the answers you have given in relation to my questions and the five categories that I need to consider when taking the professional advice as it has been very helpful and I will add it to my notes for my initial meeting.

Thanks again