Capital Gains Tax on TRUSTS

Capital Gains Tax on TRUSTS

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Dear All

A client of ours owns the legal title of  a property which is in a trust along with 3 other siblings, each owning 25% share. 

Our client for some reason is thinking of transferring the Declaration of Trust (legal title?) from his name to his brothers, but all the siblings retain the same 25% share as before. 

In this scenario is there any Capital Gains Tax implication? 

I hope my post makes sense, and look forward to hearing your opinions soon. 

Replies (11)

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By blok
02nd Feb 2012 17:58

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I'm afraid I can't make much sense of your post.

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By MJShone
03rd Feb 2012 09:27

Find out a bit more

It sounds as if you may have a situation where your client has the legal title but holds the property on bare trust for himself and 3 siblings. That's not an uncommon situation. If that's the case, there's no trust gain - each individual is assessable on his share of the gain. A bare trust isn't a trust for tax purposes.

However, you need to find out a bit more, including getting hold of a copy of the declaration of trust, to find out whether what I've described above is what you have in your particular case.

If all you're doing is tranefrring the legal title and the uinderlying beneficial ownership stays the same, there are no capital gains consequeces.

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By law man
03rd Feb 2012 17:45

Property (land)ownership

In substance it sounds as though MJS is correct re CGT.

The legal title to the land is owned by A. The beneficial (equitable) ownership is 25% each by A, B, C & D.

Check which happened:

(a) A, B, C & D bought the land from a third party X; and for some reason the conveyance (transfer) was to A only; perhaps with the conveyance including a declaration of trust (that A holds on trust for A, B, C & D in equal shares).

(b) A alone bought the land from a third party X; and later A made a gift to B,C & D and in consequence A signed a declaration of trust (that A holds on trust for A, B, C & D in equal shares).

Either way, (so I understand) A will now convey (transfer) the legal title to the names of all 4 of A, B, C & D, who will continue to hold the beneficial interest in equal shares.

I suggest ensure a solicitor drafts the transfer by A; and that it is structured do that no stamp duty is payable.

A quick check on the current position is to obtain a copy of the register of title from HM Land Registry. For the protection of B,C & D the existing register of title should make it clear that A alone cannot transfer title to outsiders [otherwise a buyer would not know of the interests of B,C & D and would hand over the purchase price to A).

After A transfers the legal estate to all 4, the names of all 4 will appear on the register of title as the registered proprietors.

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By uktaxpal
03rd Feb 2012 20:14

who are the trustees?

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By zaj
07th Feb 2012 14:36

 

 

Thank you all so much for all the replies. 

 

I shall get back to you as soon as possible regarding the exact details of the original transactions. As far as I am aware, the father gifted the property to 4 siblings into trust. The share as mentioned was 25% to each sibling but the legal title was held by ONE brother. 

Now, the brother is intending to transfer the title to another brother, but as before, all four brothers and sisters shall hold the same share in the property and everything else remains unchanged. 

Will get back to you all with more confirmed details ASAP.

Thanks again for all your help. 

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By blok
07th Feb 2012 16:16

Still can't fathom out what it is you are trying to acheive or what the legal position is.

Did father create a trust? or - did he gift to one son with a request that he holds on behalf of the other children.  One is legally binding trust the other is an outright gift with a verbal request.

If a property is involved normally this transaction would be carried out in writing.

If one brother is holding legal title as bare nominee on behalf of the other children then there should be documentation to prove this.  If this is the case I would say that all 4 jointly own the property.

If all you are doing is looking to transfer title from brother A to brother B (why would you do that?) then I would speak to a lawyer becasue there is no tax angle here.  There is no disposal for tax purposes.

What is it they are trying to achieve and why?

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By zaj
09th Feb 2012 13:20

Hi Blok

Thanks for the response. I'm not sure WHY the brother is looking to transfer the title from his name to the other brother. He hasn't really given us much details on that. But basically, that is all they're doing. So would my earlier assumption be correct in thinking there is no tax liability?

There is a lawyer dealing with it currently. He/she is the one that suggested our client have a word with us regarding the tax implications before they finalised the paper work. 

But in essence, as you said, brother A is transferring the title from his name to brother B.

I have requested further details from the client as suggested earlier, ie register of title from HM Land Registry and also a copy of the declaration of trust. 

Thanks again for your replies, and I'm sorry I seem to be getting back so late. The client is based abroad and hence there's a lag in communication with him.

Will get back to you all as soon as I get my hands on the documents. 

 

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By zaj
21st Feb 2012 11:34

Hello again everyone.

 

EXTREMELY sorry for the delay in getting back. Just heard back from client this morning.

So here's the precise details:

Wife inherited house from her late husband in 1993.

She transferred house to son 'A' in 2001 by way of gift. 

'A' made Declaration of Trust in 2004 confirming holding property on trust for himself, brothers 'B' 'C' 'D' and sister 'E' with equal share of 1/5 each.

Now 'A' is considering transferring legal title from 'A' to brother 'B' and making a Declaration of Trust confirming that he holds property on trust for himself and siblings in equal shares ie 1/5.

 

Given that 'A' is maintaining the same share and there is no monetary exchange as such, I feel there's no CGT implication no?

 

Again, I am REALLY sorry about the delay.

I REALLY hope the delay hasn't caused everyone to lose interest! :( 

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By MJShone
21st Feb 2012 11:42

No CGT implications

If B makes a similar declaration of trust then you have no change in the beneficial ownership, only in the legal ownership so there's no CGT.

 

There might have bneen CGT iomplications back in 2004 if the property had previously been A's since gift from mother in 2001 but that's not your question.

 

Like Blok - not clear why legal ownership needs to change but maybe the family has its reasons.

 

Don't be too surprised if A gets a query from HMRC - it's not unknown for them to see a change on the Land Register and assume there's been a disposal. 

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By zaj
21st Feb 2012 13:27

Thank you for the reply MJShone

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By uktaxpal
04th Mar 2012 07:21

But,should legal title be held by the trustees ?

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