Settlor Interested Discretionary Trust/CGT

Trusts Discussion
1

I have been asked to consider some points and options relating to a Settlor Interested Discretionary Trust. The Settlor created 2 such Trusts on the same day whereby property was settled in both cases. My query relates to CGT.

I am considering the tax implications of bringing both trusts to an end before the 1st 10 year anniversary.

The 1st settlement relates to the Settlors residence and so I believe PPR can be claimed by the Trustees.

The second is a non residential property used for commercial purposes. As the trust is Settlor Interested Holdover relief is not available. However, the trust includes a power for the Trustees to add and permanently remove beneficiaries.

With this power in mind I wondered if by removing the Settlor permanently from the class of beneficiaries, this would mean that the Trust would no longer be Settlor Interested and Holdover relief could be claimed? My concern is that the fact that it was Settlor Interested when it was created may prevent this. Also the fact that the related settlement will remain Settlor Interested.

Anyone’s thoughts or guidance would be greatly appreciated.

Thank you.

2

I believe holdover relief is only denied on transfers to a settlor interested trust, so you should still be able to claim holdover on a transfer out without removing the settlor as beneficiary.

3

I agree with Diana on this point, although the beneficiary does need to be UK resident and there is a claw back if the beneficiary becomes non-UK within six years after the end of the tax year in which the gift was made.
Also beware that PPR and holdover relief do not mix.

Paul Davidoff
New Quadrant Partners

4

Hold-over relief is not available on transfers into settlor interested trusts although it is available on transfers out of such trusts.

PPR is available on the gain arising in the trust on a transfer out as no hold-over relief claimed initially.

Not applicable here, but where possible, hold-over relief on transfers into a non-settlor interested trust AND a claim for PPR on subsequent disposal by trustees is not possible.

Malcolm Finney