I realise this has been discussed elsewhere on the forum but I’m coming across conflicting opinions.
H&W self -settled their main residence into a RPT which specifically gave each the right to occupy during their lifetime. Both have now died and the trust is now a discretionary one. IHT is not in point.
The intention is to sell the property and give the funds outright to A&B, two of the beneficiaries.
At present, the majority of the gain should qualify for PPR but they don’t intend to sell for a while yet so that may change.
Hold over relief wasn’t available on the way in to the trust but should be on the way out. I understand that it’s not possible to claim PPR after claiming holdover however I’ve seen opinion that indicates that the trustees could appoint the fund to the two beneficiaries, claim PPR for the period where the life tenants occupied the property and hold-over that part of the gain not covered by PPR. Is this possible? On what basis?
This is anti-avoidance and can have a nasty disproportionate outcome.
If the trustees claim hold-over relief for their gain, however small, the gain on the appointee’s later disposal will NOT be entitled to any PPRR regardless of the size of it and how the gain accrued, even if overwhelmingly after the appointment. The appointee can in turn claim hold-over relief but their transferee would face the same issue. Of course if the appointee retained the asset until their death any gain would be wiped out under s.62(1). A sale during lifetime would however trigger the entire gain as taxable.
The disposal BY the trustees is not denied hold-over relief under s.169B despite the trust having been at any point self-interested under s.169F.
TCGA 1992 s 169B-169C disapplies holdover relief for transfers to a Trust if the Trust is settlor-interested. I cannot see that it is denied on transfers out of a settlor-interested Trust.
If the trustees sell, it is likely, based on the points mentioned, that PPR relief could be claimed in respect of the period the property was occupied by the beneficiaries (H&W). There may then be CGT on any remaining element.
If the trustees appoint the property to the two current beneficiaries before sale, PPR could still be claimed as above, but holdover relief could be claimed on any remaining gain under s.260. The two current beneficiaries would then be taxed on the remaining gain.
Samantha, do you accept that if the trustees claim s.260 hold over relief on the gain however small the appointee cannot claim PPRR on a later disposal?
The trustees’ disposal would surely be the “earlier disposal” and the appointee’s disposal the “later disposal” per s.226A(2)(a) or (3)(a) and the relief is denied for the entire gain on the later disposal whatever the size of the held over gain. It is not simply clawed back.
Your final paragraph seems to suggest something different.
Yes, I agree. The transfer to A&B would be a deemed disposal, against which the Trust would claim PPR relief (in respect of H&W occupation) and then holdover relief.
If A&B later sell the property, they would be taxed on any gain since transfer and would not be able to claim PPR, even if they later live in the property.
I must say that this is a draconian penalty. It surely would have been sufficient to have denied relief for the held-over gain on the later disposal. And an elephant trap.