Will trust admin questions

In her Will a mother in law made a Will in which her property was to be passed to a Trust when she died with her four children being equal beneficiaries of the trust, and her (third) husband was given a life interest (to live) in the property with no obligation to pay rent. Only two of the four children were named as Trustees together with the husband.

After the death of the mother in law one of the children, who was also a Trustee, died not long after. A Deed of Appointment was then drawn up (2019) in which the other two children were appointed as new trustees; this Deed included and referred to a document schedule listing the Will of the mother in law, the death of the mother in law, the grant of probate for the mother in law, and the death of the child. The Deed also mentioned the intention to transfer the property now in trust to the Trustees.

Following the recent death of the husband:
1) Is a change of the Trust’s registration with HMRC to remove the husband as a Trustee sufficient or must another Deed be drawn up?
2) Do you have to have a Deed of Appointment to take assets out of a Will trust?

1 A change of trustees must be registered on TRS even if the trust no longer subsists since having no trust property or as HMRC wrongly say “is closed”. You do not indicate if the property is registered at HMLR but if so, depending how the legal estate is owned, there will be some conveyancing formalities to attend to. Presumably the death of the husband will cause his name to be removed from the title but if as it seems two trustees remain they can transfer the legal title.

2 You do not say whether the property is to be sold or retained, and if sold whether that is so near-term that the sale might precede the distribution and be of the sale proceeds rather than shares in the asset. The trustees woul then give a TR1 to the buyer and deal with the money by transferring it in equal shares.

The type of transfer depends on the Will’s terms. In general where a power of appointment is exercised a Deed will usually be prescribed. But in a straightforward situation of four beneficiaries sharing equally it is likely that the trustees could use a power of advancement, either an express power if it exists and which will often not require a Deed but just a trustee resolution in writing (impliedly if no Deed is stipulated) and if not s32 TA 1925 is likely to apply which only requires writing.

3 But when a life tenant dies the remaindermen, here the four children, become absolutely entitled to the property by operation of law. So all the trustees need to do is to transfer the legal title to them. If the land is registered once the register is altered to the names of the current trustees they can sign a form TR1 and the four children can be registered as tenants in common with a form A restriction. For good order the trustees should resolve to do that in writing to be kept with the trust deed at least until the IHT is settled on the husband’s death and the HMLR registration changes made.

The TRS registration should be cancelled.

Jack Harper

Thankyou for your comments Jack.

The property is registered at HMLR in the names of the 4 trustees (including the deceased trustee). The remaining trustees are the Trust beneficiaries (and they were also the beneficiaries of the Will of the son who died, probate granted) – so there are effectively 3 beneficiaries to the original [mother’s] Will.

The TRS registration was very recent and, since the HMLR transfer to the trustees was in 2019, the property is not mentioned in this registration. In the online registration process you are only asked if your Trust has acquired property since 2020.

The property is to be sold near-term and the proceeds distributed to the beneficiaries in equal shares. Rather than remove the husband’s name from the title now, it is hoped there can be a transfer directly to the buyer (assuming there is no undue delay in selling the property). I should mention that this is a leasehold property on a managed retirement complex and there is a 1% transfer charge [exit fee] (and other costs) payable to the freeholder – hence a desire for just one HMLR transfer.

The mother was 100% owner of the property at the time of her death. A section of the mother’s Will states “I GIVE…all that my interest or share of whatever proportion nature or amount in the property… or in the respective proceeds of sale thereof upon trust to sell…”. Is this latter part an express power to sell the property?

The deceased husband did not own any share in the property, only the right to live their during his lifetime. Probate has been applied for and the value of his estate (which included the value of the property at the time of his death as per HMRC rules) is well within the NRB. Must probate be granted for the deceased husband before the property sale can proceed?

Steve

It seems convenient and cost-efficient then to sell the property as a first priority. You will have to deal with Form DJP to restrict the registered proprietors to the 3 surviving trustees, unless that is the current position. There is an express trust for sale, so a trust of land per TLATA 1996 section 4. s6 applies as regards the trustee’s powers. s11 may apply if not excluded by the will but this will be a mere formality save possibly for the executors of the deceased, who had a vested quarter share. It must be good practice anyway for all parties to agree in writing to the sale and instruct the trustees and their lawyers accordingly. None can then later maintain they objected to the sale on its final contract terms.

It seems that from the NRB info on both deceased that there will be no IHT liability on the husband’s death for the trust. You need not wait for the husband’s probate if you are certain of that. His death does not affect either legal or equitable title. Presumably you will be claiming full PPRR for CGT on a trust and estate return in due course, as a claim is necessary. Others on here argue that a written claim is sufficient without a return but I favour a return for its s29 TMA protection. In fact strictly the trustees will be selling as bare trustees for the 3 beneficiaries and the estate of the deceased fourth: s60 TCGA 1992. That means that each of these should do their own return as beneficial owner of their respective shares (if a return of the gain is required).

The TRS position seems to me to also require notice of a change of trustee and that the trust has “closed”. On the above analysis that s60 applies there is no conversion to a taxable trust.

Jack Harper

Will trust admin questions

I was reading your comments above Jack and think I agree. My analysis is as follows:
On the death of the beneficiary possessing a QIIP a deemed disposal (and re-acquisition) of the property is assumed to have been made by the trustees but any capital gain arising results in no CGT charge [TCGA 1992 s 72]. Thereafter, the trustees are deemed to hold the property on bare trust for the relevant beneficiaries [s60]. Any gain arising on a future sale of the property by the bare trustees is that of the beneficiaries for whom the bare trustees are holding the property.

However, any such gain will not be subject to CGT if TCGA 1992

s 225 is satisfied and appropriate relief thereunder is claimed by the bare trustees (not the beneficiaries). Wrt claiming such relief HMRC provide per HS283:
“In your computation of the gain on any relevant disposal included with the Capital Gains Tax summary, either in box 54 or in your attached computation, write that ‘Private Residence Relief is claimed’ and state the amount of relief claimed. In addition, enter code PRR (where Lettings Relief doesn’t apply) or LET (where Lettings Relief does apply) in box 8”. “

In addition to the need for a claim for relief to be lodged by the bare trustees it is also necessary for the trustees and beneficiaries to ascertain if they have any reporting/filing requirements. Both trustees and each beneficiary each need to file their normal annual return.

FA 2019 s and Sch 2 would need to be considered but in view of s 60, the trustees would not seem to have any reporting requirements under the Schedule and in view of the relief under s225 no reporting (or CGT payment) is necessary by the beneficiaries.

Malcolm Finney

What s 29 protection, Jack? A PRR claim made outside of a return must also amount to s 7 notification as it will inform HMRC of the deemed disposal. This would restrict the period in which HMRC could issue a discovery assessment to four years; the same limit as applies to return prepared with reasonable care.

Disagree. A s.7 notice is not return. S.29(4) et seq apply to”returns”. Including a voluntary one but only if HMRC treat it as such, an unwelcome uncertainty!

Jack Harper

Thankyou all, and Jack and Malcolm in particular for your very helpful comments and analysis. From what you both say I believe the following needs to be done (with supplementary queries).

  1. TRS registration was made only in the names of the three surviving trustees so assuming no further action needed on this until the property is sold and the trust can then be ‘closed’.

  2. Send form DJP to HMLR with death certificate for late husband to remove him from proprietors’ register. Would it be sufficient for only the lead trustee to sign this form or must all three surviving trustees sign it?

  3. For claiming PPRR for CGT on the trust: looking at form HS283, it appears that the capital gain is between the date of death of the mother (settlor) and the date of death of the husband who had a life interest. Since the husband died in tax year 2023/24 should this claim be sent to HMC now?

  4. Malcolm mentioned that “Any gain arising on a future sale of the property by the bare trustees is that of the beneficiaries for whom the bare trustees are holding the property”. Must each beneficiary send form SA800 to HMRC if their share of a capital gain on the sale of the property exceeds their annual CGT allowance? And sending this form is unneccessary if their gains are within the allowance?

(For simplicity I’m assuming no gains other than that on sale of the property).
4. But Malcolm also said “However, any such gain will not be subject to CGT if TCGA 1992”. Assuming this refers to a future sale by bare trustees, what specifically in TCGA 1992 would make this so?

  1. Jack, on a trustee resolution agreeing for the property to be sold - is there specific (legal) wording that should be used for this?

Many thanks, Steve

The property was occupied by mother in law’s husband on a life tenancy. Any gain between value of property at date of mother in law’s death and her husband’s death (in 23/24) is effectively wiped out [TCGA 1992 s72]. Hence there is no need to lodge a PPR relief claim by the trustees.

However, following MIL’s husband’s death the trustees hold the property on bare trust for beneficiaries. As and when trustees sell the property there may be a capital gain (ie difference in value between husband’s date of death and date of future sale). It is this gain which may not be subject to a CGT charge if TCGA 1992 s 225 is satisfied and in respect of which trustees must lodge a claim [suggest you read s225 to see if conditions therein will be satisfied]. I don’t recall there is a time within which such a claim must be lodged.

Yes, each beneficiary in respect of whom the bare trustees hold the property will need to file a CGT return (SA 108) in respect of their share of the gain (unless their share is less than their annual exempt amount).

Note also my comments in my final paragraph above:
“FA 2019 Sch 2 would need to be considered but in view of s 60, the trustees would not seem to have any reporting requirements under the Schedule and in view of the relief under s225 no reporting (or CGT payment) is necessary by the beneficiaries”.

Malcolm Finney

Thankyou Malcolm for this clarification and guidance.

There is one scenario I had overlooked which actually seems quite likely: if there is no capital gain on a sale by the bare trust (no difference in value between husband’s date of death and date of future sale) is there still a reporting requirement for the trustees to complete form HS283?

Many thanks, Steve

Having re-read your posts, on the death of MIL’s husband the settlement ceases and the remaindermen become absolutely entitled to the trust property. Thus, under TCGA 1992 s 73 the trustees are deemed to have disposed of the property and re-acquired it at its then market value but no actual CGT charge arises (in essence, a tax free uplift applies).

Thereafter, the trustees are deemed to hold the property on bare trust for the relevant beneficiaries [s60]. Thus, any gain arising on a future sale of the property is therefore effected by the trustees but on behalf of the remaindermen. Post MIL’s husband’s death, the property is no longer settled property and hence TCGA 1992 s 225 cannot be in point (in which case no claim can be made by the trustees under that section). Any gain arising is that of the remaindermen and no PPR relief would seem to be available.

TCGA 1992 s225 applies only where the disposal is a disposal of settled property by the trustees (in the event a claim would be necessary, the time limit would be governed by TMA 1970 s 43).

Malcolm Finney