I would be grateful for your views on the following:
Life interest trust set up from a Will pre-March 2006. It held a residential property since 2004 which the life tenant had a right to occupy and did occupy it as their main residence up until they went into a care home in 2022. A couple of months later, the life tenant died and the trust continued as there was a second life tenant who effectively took the same entitlement as the 1st life tenant, but has never occupied the property as their main residence. The property was sold in 2023.
From what I understand, the following has happened:
- As the life tenant died and their interest was a Qualifying IIP, the value of the Trust would be aggregated with their Estate at death and subject to IHT.
- For CGT purposes, there is a deemed disposal made by the Trust which rebases the Trust’s cost for CGT to the probate value at the life tenant’s death but effectively there is no chargeable gain on the Trust at this point. In theory if there was a gain, then PPR should be in play to exempt the whole gain as the life tenant occupied the property as their main residence throughout that time.
- The Trust provided a life interest to another life tenant (which is not a QIIP) which meant that for IHT purposes the trust is a relevant property trust.
- The sale of the property in 2023 is calculated as the proceeds less the rebased cost (probate value), less any costs and the Trust’s annual exemption.
However, as the Trust has owned the property throughout the period 2004 to 2023 and a life tenant has occupied the property during that period, is there any chance that the last 9 months of ownership can be claimed by the Trust? Or does the fact that there is a deemed disposal mean that the ‘ownership’ for all CGT purposes (including PPR) only goes back to the death of the 1st life tenant, and in this case life tenant 2 has never occupied the property so PPR is not available?
Any thoughts would be gratefully appreciated.