Share this content
5

Life interest Trust, CGT & IHT

Didn't find your answer?

A client's father has died and there is a Trust in which my client and her two siblings own 50% of the house in which their step mother lives, of which she owns the other 50%.  The stepmother is entitled to live there and, when she dies her share will go to her sons and the house can be sold. Repairs and maintenance are shared jointly.

The step mother wishes to remodel the house and my client and her siblings are not keen on the idea of having to make joint decisions about all the repairs and maintenance so the step mother's two sons have offered to by my client and her siblings out.

First question - does this give rise to a CGT or IHT from the setting up of the Trust when the father died?

The solicitor has raised a point about "life interest value". The probate value was £517K and my client and her siblings will receive £200K so

Second question - how is the life interest value calculated for CGT purposes?

Replies (5)

Please login or register to join the discussion.

avatar
By Tax Dragon
09th Dec 2019 09:20

I find your description somewhat unclear, so I'll begin by summarising what I think you mean. Client's father and his wife held a property equally as tenants in common. He died and left his 50% share on IIP trust for widow (an IPDI), remainder to his children. If that's wrong, so might the rest of this comment be.

The tax issues lie with the trustees and the widow's children. Assuming that they think £200k is fair value, your client and siblings are not making an IHT ToV. Irrespective of the fair value point, they do not have a chargeable gain or allowable loss - this by virtue of s76 TCGA 1992.

Thanks (0)
Replying to Tax Dragon:
avatar
By mbee1
09th Dec 2019 11:12

Apologies for my unclear description. Yes you're correct. Now I'm a little unclear with your answer. Are you saying that, assuming the 200K is a fair value, there are neither IHT ot CGT implications for my client and her siblings?

Thanks (0)
Replying to mbee1:
avatar
By Tax Dragon
09th Dec 2019 11:50

Presumably, they are retiring as trustees and don't need to worry about the trust side of things? They're getting some cash and (once retired – and indemnified – as trustees) that's the end of their interest?

From their personal tax point of view, a remainder interest is dealt with for IHT by s48 and for CGT by s76. (I'd forgotten s48; the fair value point was a red herring, I was thinking of s10.)

Thanks (0)
Replying to Tax Dragon:
avatar
By mbee1
09th Dec 2019 13:09

Thanks but I still don't see the straight answer I'm looking for. Yes that will be the end of their interest.

Thanks (0)
Replying to mbee1:
avatar
By Tax Dragon
09th Dec 2019 13:30

I am referring you to legislation because there are always conditions. I imagine that if you look at s48 IHTA and s76 TCGA, you will quickly see a straight answer. Have you looked?

To be fair, the conditions in this case are almost certainly met (and there's no IHT or CGT for your client to worry about) - but more often than not, if you see a definite answer on Aweb, there are assumptions, ignorance, or both behind it.

Thanks (0)
Share this content