Hi, the trustees of a dicretionary trust signed a deed of appointment to pay capital to the beneficaries. The assets of the trust are shares, at the time the deed of advancement was signed, there was not sufficent cash to pay out. The trustees then sold assets to generate sufficent cash . .
There willbe an exit charge, and a CGT charge, as the payment was cash, I am struggling to see how hold over can be claimed. Does the fact that the deed of advancement was signed before the sale help ?
Much will depend on the wording of the deed. It may well have transferred the equitable interest in the shares to the appointees creating a bare trust, if not expressly then impliedly, so that the subsequent sale was a CGT disposal by the appointees.
The transfer under the deed would then be a separate CGT disposal by the trustees qualifying for hold-over relief (if all other conditions of that relief were satisfied) because it would also be a chargeable event for IHT. “It should be noted that, by TCGA92/S165(3)(d), if the relief under TCGA92/S260 is available then relief within TCGA92/S165 cannot apply: in essence, the former takes priority over the latter”:CG66880. So whether the shares are business assets will not matter.
Even if the sale follows shortly after the execution of the deed the two should be reasonably regarded as a reasonable course of action within the GAAR.
So the key issues are does the deed appoint the shares and, if so, should hold-over be claimed, which depends on who will pay more CGT. A further consideration is whether the deed makes the appointees liable for the CGT which would allow a deduction for it in charging IHT on the trust chargeable event. If so hold-over relief would deny that deduction: s165(2) IHTA and IHTM42163 para 3.
Thank you Jack
The deed states amount of cash to each beneficiary doesn’t mention transfers of shares at all the deed states trustees responsible for all taxes !
This would usually be treated as a sale of the shares by the trustees and returned as such to HMRC.
As the deed states the trustees are responsible for all taxes, these should be paid out of the retained trust fund with the appointees receiving the cash sums specified.
If the retained trust fund is insufficient to pay the tax, etc. in full, the trustees may be personally liable for the shortfall, and might perhaps open a discussion with their professional advisers as to the implications of such a scenario.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals