Use of Discretionary Trust to mitigate CGT
The scenario: Husband & Wife own a house which they bought 10 years ago that they have never lived in. The house is currently let to their son. The parents wish to sell the house and pass the proceeds to their son.
As the parents are not entitled to any PPR relief the tax on the gains is going to be significant.
I have an idea in my head how to mitigate the tax but it seems too easy so I'm sure I'm missing something. Here goes'..parents transfer the house to a discretionary trust, the market value of the property is less than the IHT threshold and there has been no transfers in the last 7 years so no immediate charge to IHT. The parents elect to holdover the gain, i.e. the trust inherits the base cost of the asset, and nominates their son as the beneficiary.
After a period of time the trust passes ownership of the house to the son and again elects for holdover. The son sells the house as his PPR and incurs no CGT.
Problem, I feel the revenue could look at these as linked transactions designed to avoid tax and could overrule the use of the discretionary trusts and the holdover relief.
Should the house be held in the trust for a particular minimum period of time?
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