CGT on transfer of property into a disabled trust?

is there CGT on transfer of property into a disabled trust?

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hi

is there CGT on transfer of property into a disabled trust? the trust is to be set up as an interest in possession (no discretinary trust)'; under normal trust rules it would be treated as PET (not CLT) – nonetheless I know there are special rules for disabled trusts.  the reason is because the settlor (parent) needs to ensure that the trustees (siblings) will have no discretion over income distribution.

And is it true that for a transfer to a disabled trust to be treated as PET, it must be property (no cash or shares)?

I cannot find anything on this anywhere. many thanks. 

Replies (8)

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By Tax Dragon
20th Apr 2024 13:43

Is this an IHT question (as reference to PETs and CLTs implies) or a CGT one (per your tag and headline)? Confusion in confusion out, thus spake Confucius.

Here's the gov.uk oversimplication: https://www.gov.uk/trusts-taxes/trusts-for-vulnerable-people

BTW your sentence "under normal trust rules it would be treated as PET (not CLT)" is like 20 years out of date. I think you should consider stopping giving advice on capital taxes, if you don't have someone you can work with/refer to when these issues come up.

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Replying to Tax Dragon:
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By neanderthal
20th Apr 2024 15:54

thanks for the advice. but it would be good since you are up to date to justify why
that phrase is 20 years out of date. Or your tone and criticism could entail making you make you come across as judgmental which i dont think you are. with all due respect. and btw i think this question is about IHT issues, not CGT.

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Replying to neanderthal:
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By Tax Dragon
20th Apr 2024 20:14

The question of whether a piece of work is within your capabilities is a matter for your judgment not mine, hence I said "you should consider", not "I consider". I think we are on the same page.

c20 years out of date because of the changes to Pt3 and Ch3 of IHTA in 2006. Prior to that, the basic position had been as you said - interest in possession trusts not part of the relevant property regime, discretionary trusts subject to that regime. From 2006, only qualifying IIPs are outside the regime; this category includes disabled persons' interests meeting specified conditions.

Oh and specifically on PET v CLT... s3A was amended at the same time. In effect (as had been the case previously) transfers to RP trusts were (and are) CLTs, but as more types of trust now come into the RP regime, so more transfers in are CLTs. (That's not how the legislation words it, of course, but if you looked at the sections you would hopefully understand why I do word it like that.)

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By taxdigital
20th Apr 2024 13:51

As the settlor and the trust are connected persons (s.286(3) TCGA) any transfer in to the trust will be at market values (s.17). This will be the case even if the settlor is a beneficiary (s.70).

Gift relief may generally apply either under s.165 or s.260 depending what the property is about, and s.260 has priority. And this is where a disabled person's trust is in point as transfers into such trusts being PETs for IHT no relief will be available under s.260.

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By taxdigital
21st Apr 2024 07:42

neanderthal wrote:

btw i think this question is about IHT issues, not CGT.

It’s time for me for a visit to the Specsavers then as I read the question as:

“CGT on transfer of property into a disabled trust?
is there CGT on transfer of property into a disabled trust?“

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Replying to taxdigital:
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By Justin Bryant
21st Apr 2024 10:35

That's just TD being her usual self i.e. a bit hoity-toity and thick at the same time (is there a specific word for that? Maybe thoity-thoity?).

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Replying to Justin Bryant:
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By Tax Dragon
21st Apr 2024 18:34

You realise that taxdigital was quoting the OP, not me, don't you?

No?

Oh, the irony.

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Replying to Tax Dragon:
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By Justin Bryant
22nd Apr 2024 08:59

Well, you were at the very least your usual hoity-toity self in your other above comment, hence the understandable error on my part.

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