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Trust - CGT+IHT on sale of assets

Trust - CGT+IHT on sale of assets

Hi all

A client is selling a property which has recently been discovered is held in a (statutory) trust (pre March 2006) and wants to know CGT / IHT implications. Alhtough I know the basics of trusts I'm aware it's a very complex field so just want to check I'm thinking along the right lines, or nudged in the right direction ;)

In sumary, father died, no will, property (was all in his name) put in trust for the 3 children and mother has a right to live in it during her lifetime. The house is to be sold for a more suitable accommodation for the mother who is now elderly. Cost £200k, Current Value £500k, so gain £300k

It seems the trust is split in two halves - one half being Mum & Child 1, the other half being child 1+2+3. I'm told ownership is the 3 siblings only.  Mum and Child 1 to purchase new property together with proceeds (Child 2 + 3 have agreed to gift their share over - can they make any future claim against them?)

CGT - PPR? Does the whole gain qualify for PPR as the widow is living in the property? Initially I thought so, but now I'm not so sure.

IHT - no trust adminsitration has been done, as only recently discovered it existed. Initially I thought that as mother may be a beneficiary of the trust (but not owner) and has lived in it, maybe it isn't an issue as she's considered to have an interest in posession.  But am doubting myself - should 10 year charges have been paid? Are there the two nrbs for mother and father?

Finally, if new property purchased in child 1 name only, then it would be a gift from mother to child 1 with the 7 year rule coming into play.

With Trusts, I'm never sure if  I'm over complicating things, or simplyfying things too much! So any helpful advice is much appreciated to get me looking in the right areas.

Thank you 

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By DJKL
18th Feb 2019 16:53

"In sumary, father died, no will, property (was all in his name) put in trust for the 3 children and mother has a right to live in it during her lifetime."

Who did all this and why?

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to DJKL
18th Feb 2019 18:09

Yeah - where did this trust magically appear from if there was no will ?

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19th Feb 2019 20:26

This sounds just what would have followed from an intestacy.
If there are surviving children, grandchildren or great grandchildren of the person who died and the estate is valued at more than £250,000, the partner will inherit:

All the personal property and belongings of the person who has died, and
The first £250,000 of the estate, and
A life interest in half of the remaining estate
The remaining half will be inherited outright by the children.

We are not told what other assets the husband may have had. If they were £250,000 then:-
Half the house will have devolved on a life interest trust in favour of the widow with her children as reversioners being the trustees
If that is right a TCGA s225 election [signed by the widow as the occupier and her children as trustees]for CGT will ensure that no CGT is payable on the sale. of that half. The children's direct share of the house will suffer CGT.

Life will be more complicated if the non property assets were less than £250,000, as the widow will then herself be part owner of the house.

Your first action must be to find out what the deceased husband's estate contained.

Such research can pay off handsomely. I am aware of a case where a forgotten intestacy was researched, resulting for various reasons in a substantial saving in IHT on the death of the widow many years later. The children were found to have inherited assets always thought to have belonged outright to the widow, their mother.

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