I am not sure I fully understand the strategy behind the question and that emphasises the limitations of the forum. The tax consequences need to be dovetailed with the objectives of the clients, and any applicable constraints, which is the unique domain of tailored advice rather than of general observations made by commentators remote from the coalface. We also rely on the facts disclosed in the OP.
I am still not sure about the Intended sequence and timing of the purchase and sale transactions and, on reflection, I had assumed that neither child would reside with their mother. This however seems to be the present position as regards one of them and probably it may well continue.
There are relatively few complications, if any, with the child who lives abroad and wishes to use her share of the trust for her own benefit. How her share is extracted for her benefit does not matter but her mother must take care if she ever “occupies” a property bought with these funds. This is because of s.10ZA FA 1986. Like all GROBs it can be activated at any time in the 7 years before death even if not immediately after the deemed gift. To argue that her joint occupation of a house partly owned by her child (if that is the plan) is a GROB would be spiteful but some comfort is provided by IHTM14360 where HMRC say that s.102B is based on a pre-existing practice: so OK as long as by analogy with that section both occupy and mother receives no benefit (ideally pays all the outgoings). The problem arises if the child moves out when a GROB will arise unless by analogy again “full consideration on money or money’s worth” is paid by mother to child. Mother moving out is not a problem.
There is also an abstruse concern that the Pre-owned Asset Tax could apply. The law requires a disposal of land or a contribution to its acquisition, followed by occupation. The problem is that this can happen indirectly. The fiction for IHT is that an IPDI owner is beneficially entitled to the trust property (either the house or its sale proceeds). Is a surrender an indirect disposal/contribution? Similarly if the remaindermen assign their interests to the LT; despite being excluded property they have real value.
This becomes largely academic provided the mother uses only her own money and the child uses only what is distributed from the trust to purchase the new house as tenants in common with respective equitable shares proportionately to funding. But not entirely safe if what comes from the trust is to be regarded for POAT as indirectly provided by mother because co-owners are entitled to occupy the entirety. A life interest has some commercial value though that is not strictly a function of the actual or prospective value of the sale proceeds of the property in which the interest subsists. There is a specific POAT exemption where s102B prevents a GROB; if and as long as the circumstances are analogous (see above) it is to be hoped that in practice HMRC would ignore joint occupation for POAT also.
If joint ownership is the plan it might be preferable if, after the fixed remainders are appointed out of the DT to the children, the trustees then advance 100% of each share to them under s.32 TA 1925. (This is a post-2014 trust so that will be possible unless s.32 is excluded by the trust instrument). The argument then runs that the funds are provided by the deceased and not by the mother and her requirement to consent is not indirect provision of the advanced land or sale proceeds. Unlike with a surrender she is not actively instrumental in the disposition of the trust funds: she can prevent it by refusing consent but not secure it.
The timing of the DT appointments on fixed remainders and advancements can be effected over house or sale proceeds but the sale will be simplified if the trustees contract. S.28 will make contract the date of disposal for CGT. The DT appointment can be made at any time but presumably the advancements are really only needed after completion to release the cash funds. Synchronising the sale with the purchase demands the usual conveyancing ritual dance.
Downsizing will still apply for RNRB but s.8FA will apply, not s.8FB, if mother dies owning a QRI which will only be a part interest in the house (if I am right) and will attract a 15% discount if the child is in residence or 10% if not. Of course that interest or at least part of the estate, as the case may be, must be “closely inherited”.
Jack Harper
If the UK-based child is not to have an interest in the new house, contrary to my supposition, how she funds her mother to purchase the entirety will require an additional tax plan.
