My firm are the Trustees of a Will Trust which is a QIIP in favour of Mr X following the death of his wife Mrs X.
The trust’s asset is a 33% share in a property which is co-owned by the Trustees, Mr X and Mr X’s new partner.
Mr X and the remaindermen of the trust are all in agreement of bringing the trust to an end. They want to achieve this by Mr X having the trust’s share of 33% in the property in exchange for a cash sum of £150k to the remaindermen.
All remaindermen are of age and capacity and have vested interests.
Is the best way to approach this, a sale of the reversionary interest by the remaindermen to Mr X? How is this achieved in practice, by Deed?
I am aware that there will be tax consequences for possible SDLT and CGT. For IHT, how is this treated?
Any other suggestions as to how best to proceed are of course welcome
The only formality is that the disposition of the reversion as an equitable interest must be in writing: s53 LPA 1925. So a written assignment, perhaps included in a written contract dealing with ancillary issues like payment of the price, but not a deed unless any such matters are not covered by the contractual consideration.
The legal title is presumably staying where it is unless the plan is now to transfer it to Mr X and his partner; if they own the other 67% jointly in equity the entire property will become held on a bare trust because the QIIP will merge with the reversion and the trust over the 33% will terminate by operation of law. (It must first be ascertained that merger will have this effect!!!).
The sale of the reversion is not a TOV by either party if the consideration is market value or, if not, s10 applies. The reversioner’s estate is actually increased by the consideration: the reversion is excluded property within s48 and its disappearance is not a TOV per s3(2) despite being included in a person’s lifetime estate per s5, although not in their death estate: s5(1)(b).
There is no IHT charge on Mr X’s QIIP termination as s53(2) applies. The reversion on acquisition ceases to be excluded property but its leaving his estate by merger is not a disposition made by him, unless by associated operations, when s10 would seem to apply.The sale is an operation but surely the merger is not; and if it is s10 should apply to both provided the price is an arm ‘s length amount: IHTM14826. That may be so even if it reflects a discount to the price obtainable for the property interest which anyway would attract its own discount. The reversion is the subject matter of the valuation; HMRC cannot compare the price that might be payable for something different. If the remaindermen are not otherwise connected to Mr X there should be no contest or justification for investigating how the price was in fact negotiated.
For CGT Mr X becomes absolutely entitled but PPRR may be due. For SDLT the sale of the reversion is the acquisition by Mr X of a chargeable interest. The purchase of a reversion is not of a major interest so first time buyer relief is not due even if it would have been had he bought a share in the property (and in that case it might be better for him to acquire the share from the trustees as step 1 with his acquisition of the reversion as step 2 of a composite agreement). The trustees appear to be the purchaser of the 33% but Mr X may well be the (previous) purchaser of all or part of the 67% if it is a bare trust.
After merger the TRS registration of the QIIP trust should be “closed”.