PPR on trust after death of life tenant

Will the 18 month period of exemption apply following death of life tenant

Didn't find your answer?

My understanding is that if a lifetime trust has been set up in which its only asset is a property and under the terms of the trust the beneficiary has a right to the income (to live there) then there will be no CGT due to the availability of PPR under section 225 TCGA 1992 if the life tenant occupies as his only/main residence. If that beneficiary dies with the result that the trust becomes a discretionary trust and the property remains vacant thereafter will the usual exemption for the final 18 months of ownership apply on any later sale of the property? Any help much appreciated.

Replies (8)

Please login or register to join the discussion.

avatar
By Tax Dragon
22nd May 2019 14:16

Your understanding is along the right lines and what you say may be true in the case in point, but, as a blanket statement, it is wrong. I don't say that as a criticism – take it as a prompt either to read the rules again, to take advice or to buy in some specialist assistance before giving advice, depending on your situation.

To your question: in my view, it depends. The answer is yes unless the property in question was subject to an inheritance tax charge (which may be Nil) on the beneficiary's death. In that case, there'd be no PRR because the period of ownership would be taken to begin on the death of beneficiary.

Thanks (0)
Replying to Tax Dragon:
avatar
By LilyM98
18th May 2023 14:26

Hi
I am currently dealing with a very similar client and have come across your answer above whilst researching. I note you mention that if the property in question was subject to an IHT charge on the death of the beneficiary, the period of ownership for PPR starts on the death of the beneficairy. I have a settlor interested trust (Was life interest), the second of the settlors recently died. Both settlor's lived in the property as their main residence up to their death. Half of the value of property was included in their estate for IHT, as it was a GWROB. I am now looking at the tax position for the exit of the property out of the trust (it is now discretionary, didn't end on death of settlors) and have been looking at the availability of PPR. I thought that PPR would be available on the basis the beneficiaries both lived in the property for the entire period of ownership, and were life tenants of the trust however your comment has thrown me. As there was an IHT charge on the property on the death of the beneficiary, does this mean that there is no PPR available? I have tried searching through legislation etc and cannot find anything. Your help would be greatly appreciated! Thanks

Thanks (0)
Replying to LilyM98:
avatar
By Tax Dragon
18th May 2023 16:39

Here's what I suspect I had in mind 4 years ago: there'd be an IHT charge (which may be Nil) on the death of someone entitled to a QIIP (eg pre-2006, IPDI etc); on such an occasion, s72 TCGA 1992 would apply; in consequence PRR wouldn't.

But that's likely not the scenario you have described (GWROB taking second place to QIIP - s102(3)). And, if not, you can disregard my comment as it wasn't aimed at (in fact I may not even have considered - I suspect I hadn't) your scenario.

(The difference is in s72(1A).)

Thanks (0)
Replying to Tax Dragon:
avatar
By Tax Dragon
18th May 2023 17:33

I've worded that just as badly as I did my post 4 years ago: "GWROB taking second place to QIIP" could be very misconstrued. At least this time I've given a reference so people can look it up and see what I was referring to - QIIP and GWROB on the same person.

Thanks (1)
Replying to Tax Dragon:
avatar
By LilyM98
18th May 2023 19:38

Brilliant thanks so much for your help ! I will have a look at the legislation to double check , thanks again for your time !

Thanks (0)
Replying to LilyM98:
avatar
By More unearned luck
18th May 2023 19:33

No dates given! Was the gift into settlement made before or after budget day 2006? Was it made within 7 years of death? Does it escape the relevant property regime for some other reason (it seems to be a lifetime trust, so TD's reference to IPDI seems irrelevant).

FWIW I infer from your reference to GWR that your trust is a relevant property trust. TD seems to have taken the view in relation to the OP's trust that it isn't a relevant property trust. Which might explain your confusion.

Thanks (0)
Replying to More unearned luck:
avatar
By Tax Dragon
18th May 2023 19:56

Yes, the question for both the OP and the new scenario comes down s72 TCGA. I was too glib 4 years ago either in making the assumption you state or else in making the generalisation that s72(1) and an IHT charge were joined at the hip. I don't like people making unstated assumptions and I don't like people generalising and I have suitably chastised myself for, apparently, having done one or the other. Four years distant, I can't tell you which.

Thanks (0)
Replying to Tax Dragon:
avatar
By Tax Dragon
18th May 2023 20:22

Tax Dragon wrote:

Four years distant, I can't tell you which.

Yes I can (both of us seem as bad at reading as I was at writing!) The intro 'it depends' tells me I wasn't assuming; I was generalising (inasmuch as I was ignoring the RP+GWROB scenario). Which I've already acknowledged above. So this little exchange with you... might not inform an uninformed reader any more than my previous replies to the new querist do.

Thanks (0)