I have recently been introduced to a couple who were advised to transfer their main residence into a Asset/Home Protection Trust. The details are:
Married couple (both aged 65)
Main residence (jointly owned) valued c.£330k and transferred into a discretionary trust in 2014 by the couple
Couple continue to live in the property as their main residence and trust deed states that they are to be primary beneficiaries.
I would like some help to understand the following:
Would the trust be treated as a joint settlor trust and therefore have 2 lots of NRB for periodic fees purposes? Or would the trust only have one nil rate band allowance? The current property value is c.£550k and they are concerned about the 10 year anniversary charges.
If the trust were to be wounded up, would there be any CGT payable?
Can the trustees simply transfer the property back to them? Are there any implications?
In response to your queries I would advise the following:
Based on the information provided the couple settled the property on to trust in equal shares and therefore the trust has two settlors for IHT purposes and two nil rate bands would be available on the ten year anniversary; the value of the property at that time would be shared equally between the two settlors.
As the current value of the property exceeds 80% of the two nil rate bands an IHT return should still be submitted to HMRC to report the value on the ten year charge in due course (two IHT returns would be needed; one for each settlor).
If the trust were wound up the transfer of the property out of this would be liable to CGT but Private Residence Relief should be available. Technically this does need to be claimed by the trustees as it is not automatic like it would be for an individual.
Transferring the property back to the settlors would be the same as closing the trust, the distribution to the settlors would be a chargeable event for IHT but the values are such that no IHT would be due with the two nil rate bands but should be reported if over 80% of the nil rate band. The transfer is also liable to CGT and the private residence relief should be claimed by the trustees so that no CGT was payable.
With regard to Kat’s response, unless the settlors have a right of occupation in the trust property, I am not convinced that s.225 TCGA 1992 will apply to allow private residence relief – see Judge (PRs of Walden deceased) v. IRC [2005].
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
H and W are joint settlors. Two NRBs are available. The settlors would each have made gifts with reservation for IHT.
No IHT exit charges should arise if trust wound up within 10 years.
Appointments out would give rise to CGT charges subject to CGT relief under TCGA 1992 s 225 (ie where trust provides for a beneficiary to occupy the property).
Just out of interest, can you share the reasons given to your clients for recommending the trust? When I’ve seen these before the clients have always been very vague.
I have a similar matter. My query is regarding the IHT position on the death of one of the Settlors. The Settlors have retained an interest in the house they settled which gives rise to gifts with a reservation of benefit. So, on the death of one of the Settlors the property which that Settlor settled (a half share in the house in this case) is included as part of his/her estate for IHT purposes. However, as the trust gives both Settlors a life interest in the whole of the house will the whole house value be included in the estate on the death of one of the Settlors for IHT purposes?
Firstly, I assume you are referring to a post March 2006 self-settled settlement. If it is a pre March 2006 settlement the position is very different.
The GROB can (in my view) only be over the share of the property settled not the whole with no Spouse Exemption as the original gift will have been to the Trustees.
Thank you Nigel.
It is a self-settled Settlement dated 2014. Apologies, as I don’t think I was clear with what I meant. My query isn’t regarding GROB, rather that the Settlor who has died has a life interest in the whole of the house under the terms of the Trust. As the Settlor has a life interest in the whole of the house under the terms of the Trust does that mean that the whole value of the house is included in the Settlor’s estate on his death for IHT purposes?
Regards,
As it is a post 2006 trust the value of the life interest is not aggregable with the estate of the settlor on death as it is not a qualifying life interest under s49