Can a trust benefit from PPR

Can a trust benefit from PPR

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Firstly, I confess that I do not tend to deal with trusts and secondly this one is close to home - I've spoken to HMRC and awaiting a further call back but in the meantime I thought I would ask the real experts.

Simple facts, Dad died 5 years ago in May, the title had been tenants in common with Dad's half going to my sister and Mum's half of course being hers.

Key point is obviously that my sister is the beneficiary of Dad's share in the house.

The Will (with a letter of wishes) expressed that Mum should remain there as long as she wished.

In very late 2013 Mum was then sectioned with Alzheimer's and only now, with Deputyship in place, could the house be sold. It sold within days of being allowed to go on the market.

Obviously Mum's half is clean as a whistle but I am hoping on investigation that Dad's half may also attract PPR relief due to the fact that Mum was named as a beneficiary in the will and allowed to remain there as a life tenant e.g. the Trust could not sell the property if it wanted to.

So in short I see one of three scenarios:

1. CGT payable on whole of gain from probate value to now.

2. CGT payable on gain on basis last eighteen months is exempt

3. PPR extends all the way though and no CGT is payable.

As I say, I spent 15 minutes on the phone to HMRC and they were leaning towards option 3 but no certain answer yet - I also know that if you ask 5 HMRC officials you could get 5 different answers (despite the fact I only foresee 3 possibilities!)

Any experienced insight will be VERY much appreciated.

Replies (7)

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By Montrose
23rd Apr 2015 18:33

Did the will create a trust?

If father's share was left in trust, then a s225 election will give the trust  PPR exemption-although Mother has to sign _  presumably via an attorney.

If there was no trust, then father's share devolving on daughter will be subject to CGT in daughter's hands, with cost being value of father's share at death-which typically will be 50% of the value of the property at that date but subject to a 10-15% discount for limitation on the marketability of a half share at the time.

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By youngloch
23rd Apr 2015 18:59

Yes a trust was created on death and the will/letter of wishes clearly states that mum was to be allowed to remain.

So can a s225 election be made with her court appointed deputy (ironically my sister) signing and then we should be fine?

http://www.hmrc.gov.uk/manuals/cgmanual/CG65407.htm

I'm assuming this is the relevant part then as it is a discretionary trust and specifically states her right to reside. In reality due to her declining mental health no Court in the land would have allowed any attempt to sell the property and force mum out.

So is it a simple letter to HMRC outlining the scenario, referring to s225 and then mum signs?

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By youngloch
24th Apr 2015 12:49

After speaking to a technical advisor at HMRC

Just for the record, as I know it is often useful on questions such as this to end with a final confirmation in case of other people searching and stumbling across it later, I can confirm I spoke to a technical advisor at HMRC this morning.

I immediately raised s225 (thank you very much Montrose!) and it was confirmed that this would indeed apply due to the circumstances of the will.

In order to claim the election however I was advised that there is no need to write to HMRC with a signed document from mum.

Simply put it was just confirmed that a Trust return would need to be prepared, ideally a phone call to request an in year return to allow closure to the matter, enter all the normal details on the CGT page and simply put PPR in as the relief to be claimed.

 

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By Lawskills
28th Apr 2015 10:16

Can a trust benefit frorm CGT PPR?

In this case it seems to have been established that Dad's Will created as trust of his beneficial half share. Not all Wills do and simply being co-owner with Mum (who incidentally because of s.12 Trusts of Land & Appointment of Trustees Act 1996 has a right to occupy the whole in any event) does not create a trust of Dad's beneficial share. It will always be important to check whether the Will created a trust or just a right to reside - if the latter there will be no CGT PPR relief for the owner (i.e. not the occupier enjoying the right to reside) unless it is also that person's PPR.

Where a beneficial interest in property has been placed in a trust before CGT PPR relief will be extended to the trustees HMRC expect there to be a power to permit a beneficiary of that trust to occupy trust property and for the trustees who enjoy this poiwer to exercise it in favour of the beneficiary. In IPDI cases this would be a right of the beneficiary who enjoys the interest in possession but in discretionary trusts this is merely a power which the trustees may or may not exercise.

Usually, HMRC will expect to see evidence of any discretionary power being exercised. If you do not want to create an IPDI accidentally, trustees should merely exercise such a discretionary power 'for the time being' i.e. reserve for the future the ability to change their minds.

The CGT PPR relief will extend to the trust as Montrose mentioned by virtue of s.225. In the FA 2014 the last 36 months of deemed occupation was reduced to the last 18 months for the purposes of calculating the relief except where the person occupying was elderly and moved into long term residential care. In which case the last 36 months still applies - s.225E. I would suggest that if there was a period of more than 18 months when Mum was in care in this case then it may still be covered given the last 36 months sounds as if it would apply in this case.

The questioner talked about getting something signed by Mum but if she lacks capacity this will not be possible or if she does sign anything it will be invalid. He mentioned a Deputy being appointed - it is the Deputy who signs documents instead and should only have sold the house with a Court Order i.e. approved by the Court of Protection.

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By youngloch
28th Apr 2015 11:21

Thank you
Fingers crossed this thread will be stumbled upon by others in the future - brilliant and clear guidance very much appreciated.

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By carnmores
28th Apr 2015 12:36

what effect would there be

if say it was a Jersey trust

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By Lawskills
29th Apr 2015 12:32

CGT PPR relief - effect if it was a Jersey Trust

You would need to investigate the application of the new CGT charge and the PPR relief changes in the FA 2015 which introduce Schedule B1 to the TCGA 1992. The new rules apply from 6 April 2015 and apply to non-resident trustees. As to the details in a particular case that is beyond the scope of this digest I would suggest.

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