A client who is a registered charity, received a legacy in 2000 which included a property. The property is about to be sold and should realise about £90,000 more than its probate value. The £90,000 is to be split between 3 recipients, 2 of whom are charities, one of whom is not. Solicitors dealing are advising our client to agree to the proceeds being placed in a bare trust but my client is unsure whether this would be beneficial to him. Will his charity be liable for a third of the gain and are normal reliefs available if this is the case? Any comments would be gratefully received
Nicholas Miles
Replies (4)
Please login or register to join the discussion.
It's ownership that counts
If you had written "a share" of a property, I would have replied on the lines that only the non-charity co-owner would be liable for CGT on one-third of the gain. Was I being somewhat obtuse in that I should have read more into the comment on splitting of the proceeds ? Perhaps.
I do not follow the reasoning of a bare trust but repeat , that if your client is indeed the sole owner, CGT is not in the picture.
The legal details
Nicholas
What has happened, in terms of legal documents, concerning the ownership of the property since the original owner died?
Is the property still owned by the executors on behalf of the estate or has it been transferred (or effectively transferred) to the three beneficiaries?
If it has been transferred, or effectively transferred, to the three beneficiaries then those beneficiaries will make the gain post death and the tax liability (if any) on that gain will reflect their status (charity / individual or whatever).
On the other hand, my understanding is that if the ownership has remained in the estate then the estate makes the gain since death and the CGT payable will be based on the estate's tax status (which is not good news!).
However others may be better able to advise than I am.
In any event I am not sure of the position if, a short time prior to sale, the asset is transferred to the beneficiaries and then sold by them to the ultimate purchaser. This may be the reason for the solicitor's suggestion.
What happened about taxing the rent received over the past 5 years?
David
There are two issues
I do hope this is not another one where there is more to the story than we are allowed to read.
First issue : a charity sells an asset it owns and makes a gain- this will be exempt from CGT.
Second issue: is the client expending its income and gains for charitable purposes ? If not , its treasured tax status could be lost , on top of what action the Charity Commissioners might decide on.
Something is bugging the solicitors : is it the third recipient ? Who or what is he. she or it ? A nightclub or a homeless couple, say ?
If the client charity has an object the relief of the poor and homeless, what's the problem ?
Is there perhaps additional information that could be relevant, Nicholas ?