A married couple came to see me having established two settlor interested life interest trusts in 2003.
They had previously made a declaration of trust, which recorded that the legal title to a Spanish plot of land was transferred to their two sons, but the beneficial interest was held for them absolutely. The acquisition value of the land was around £100k.
In 2003, they were advised, for asset protection reasons, to settle their respective shares in the Spanish plot of land into the settlor interested life interest trusts.
Following this, cash sums were transferred to their sons who constructed a villa on the land. Construction was completed in 2004 and the villa is now worth over £1m.
They now want to ensure that the whole of the value of the Spanish property is outside of their estate for inheritance tax purposes (in addition to avoiding a very complicated situation on their deaths). The intention would be to appoint the land out of the settlor interested life interest trust to their two sons.
What are forum members views on my successfully arguing that the trust only owns the plot of land, and that the property subsequently constructed on the land is wholly owned by their sons, albeit constructed from cash sums gifted to them for that purpose?
This of course depends on whether I can get a current valuation of the land only, and an indication as to how the later construction of the villa now affects the value of the land, which is something I’m not clear on. This is obviously important in assessing the tax implications of the appointment out of the trust.
The only document transferring assets to the trusts is a declaration of trust, specifically describing the plot of land prior to construction of the property. All of the Spanish documents show the two sons as legal owners of the property.
Laura Green
Boyes Turner LLP