Termination of an interest in possession on death of life tenant:

Trusts Discussion
1

Continuing the discussion from Termination of an interest in possession on death of life tenant:

Just looking at this again and there are some properties which are now being sold by auction next month and these will give rise to a considerable
chargeable gain. Is there any way round avoiding the trustees’ exposure to CGT as in the winding up of an estate? In other words, can the trustees appropriate assets to the remaindermen when they hold as bare trustees in any event? Do they need to actually transfer these assets and make an election for holdover relief for the individual beneficiaries to take advantage of their own CGT allowance?

Lis Whybrow

WhatleyRecordon

Solicitors

12 Worcester Road

Malvern

Worcestershire WR14 4QU

Tel: 01684 892939

Fax: 01684 892327

2

On the death of the life tenant in January 2020 the trustees are treated as having disposed of, and re-acquired, the trust assets in which the life interest subsisted. The trustees then hold these trust assets as bare trustees for the remainderman.

Under TCGA 1992 s73 the capital gain arising to the trustees is not a chargeable gain. The remaindermen therefore, for CGT purposes, acquires the trust assets at their market values. Hence, no hold-over relief is necessary. On subsequent sale at auction any capital gains are those of the remaindermen who are able to use their own annual exempt amounts.

Malcolm Finney

1 Like
3

Thank you so much that is very clear!

I assume therefore that the trustees have to disclose the figures asap after the sales for all the residuary beneficiaries including all the relevant deductions from the gain to include valuations, auction fees, solicitors fees etc. to enable each remaindermen to calculate their individual gain. Can I include the initial valuation costs for the properties as well?

Lis

Lis Whybrow

WhatleyRecordon

Solicitors

12 Worcester Road

Malvern

Worcestershire WR14 4QU

Tel: 01684 892939

Fax: 01684 892327

4

For the remaindermen, yes they will need to know the market value of the trust assets on the date the life tenant died. In addition, in calculating their capital gain post auction various costs are also deductible. Such costs are those set out in TCGA 1992 38.

Not sure what you mean by “initial valuation costs for the properties as well?”

Malcolm Finney

5

I meant the costs in obtaining the date of death valuation

Lis