CGT on properties transferred to trust

Client's solicitor has set up a trust for the client to hold his current home and one let property

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A client's solicitor has set up a trust - (client name) Discretionary Settlement - and has transferred the client's home and one let property into the trust.  The beneficiaries and trustees are the client and his three grown up children. 

Obviously with the let property there is a CGT liability.  The solicitor has given the client the impression that this will be on the basis of 3/4 of the gain in value between its purchase and the date of the transfer, presumably because the client just keeps his share of the property and the three siblings gain 75% of the value.

I have not had anything similar for many years and my reason for doubting the second hand legal advice via the client is that the solicitor has, apparently, told him that he would have 6 months to pay the CGT bill rather than 60 days! 

Replies (16)

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paddle steamer
By DJKL
12th Sep 2023 16:25

Why transfer the home ?

Does he still live in the house that was his home?

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Replying to DJKL:
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By Tax Dragon
12th Sep 2023 16:31

"Why?!" is the only coherent reply I am managing too. Why any of it?

Who's giving the tax advice?

CGT, yes. 60 days, yes. Gain on 100% of the properties, yes. HOR, no.

IHT, yes. RPT, yes. Reservation of benefit, yes.

Etc.

(It's so cranked I think the OP must be misrepresenting what the solicitor has done - probably because it's second hand from the client.)

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Replying to DJKL:
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By Paula@Butt
13th Sep 2023 18:16

There are a couple of possible answers:
1) incompetent adviser
2) this is nothing to do with tax saving and is an attempt to shelter assets for the purposes of care home fees.

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By More unearned luck
12th Sep 2023 16:39

And why transfer the let property when the settlor is a beneficiary?

Chinese whispers: the six month payment deadline is for the IHT. The client has made a chargeable transfer. The excess over £325K and any annual exemptions is taxable at the lifetime rates. I doubt the solicitor has heard of CGT returns.

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Replying to More unearned luck:
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By Tax Dragon
12th Sep 2023 16:57

6 months is IHT yes - but it's on the loss in value of the estate (including the IHT payable - tax on tax as you know)... and you don't net off any RoB (which incidentally is also 100% not 25%).

But I think we agree - what's arriving on these pages from OP doesn't match what the solicitor wrote/said. Or did.

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By More unearned luck
12th Sep 2023 16:43

Ask to see the written guidance and explanations of how the trusts works and what it sets out to do, that should have been provided by the solicitor and show it to TD asap.

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By Catherine Newman
12th Sep 2023 17:15

I know very little about Trusts but this is a Settlor Invested Trust. I took on a few clients from a Trust Department of a very well known bank through an IFA years ago and they sometimes query it but the Trust Department of said Bank used to do the returns saying Settlor Invested Trust and I have followed it.

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Replying to Catherine Newman:
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By Tax Dragon
12th Sep 2023 18:56

You mean the income (all of it, not 25%) is taxable on the settlor? Well that's true, based on the position as stated.

To show you how rare this situation is... we have registered 100s - maybe more 0s - of taxable and non-taxable trusts, and I don't know without looking it up which type this would be.

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Replying to Tax Dragon:
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By More unearned luck
12th Sep 2023 20:25

If the trust has income then, broadly, the trustees pay the same tax as if wasn't settlor-interested. So it would be a taxable for TRS purposes. And, of course, might be taxable by dint of a liability to various other taxes.

In the case of a DT the settlor is likely to get a refund as he or she has deemed income that has mostly suffered tax at the AR with £1,000 (probably) at BR. There is a special tax certificate (R185(settlor)) for the trustees to give to the settlor.

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Replying to More unearned luck:
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By Tax Dragon
12th Sep 2023 21:17

Not dealt with one since my little one was born and had forgotten all that.

Known unknowns, unknown unknowns and forgotten knowns.

Scary.

But thank you.

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By SXGuy
13th Sep 2023 08:12

I wouldn't listen to a solicitor when it comes to tax personally. I had one the other day tell me that a company who lends money to another without a commercial lenders licence is subject to corporation tax.

Where do you start with that one.

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Replying to SXGuy:
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By Tax Dragon
13th Sep 2023 09:20

Solicitor is right.

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By JCresswellTax
13th Sep 2023 10:17

I presume you mean on the interest received? If not, please elaborate!

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By SXGuy
13th Sep 2023 15:15

On the whole lot. Obviously interest is taxable.

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Replying to SXGuy:
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By Tax Dragon
13th Sep 2023 19:39

The whole lot of what? You mean like if I lend you £10 I am taxable on £10? Do a get a deduction when you repay? (You and I are companies for the purposes of these questions.)

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By taxdigital
13th Sep 2023 08:37

This is a settlor-interested trust. So, briefly:

1. IHT - Whilst the transfer is CLT for IHT purposes, GWRoB rules will also apply as the settlor is one of the beneficiaries.

2. CGT - will apply. Whilst no gift relief will be available the base cost can be adjusted by reference to s.260(7) TCGA.

3. IT - any income from the trust will be taxed on the settlor applying s.624 ITTOIA.

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