Capital Gains tax after selling late father's home

TrickyNicky

Update, the value of the property went up £50,000 in 7 years not £80,000 as I said earlier. So technically £33,000 of this is profit on my Mums /Trustee share of the house. Will we need to pay CGT on this and, if so, what is the rate of tax?

Many thanks to all who have contributed. I appreciate this isn't straight forward.

macman

If the gain is £50K and your mum's share is half, then that's £25K. Where do you get 33% from?
You then deduct the CGT allowance for the applicable year currently £11700), and the remainder is taxed at either 18 or 28%, depending on your marginal income tax rate.

Keep_pedalling

This is complex you need to take professional advice. It’s a bit scary that you are a trustee but have no knowledge as to what sort of trust it is.

xylophone

Looking at what has been said, it seems that an interest in possession/life interest trust was created when mother died.

The OP states that when her mother was alive, her parents owned the house as tenants-in-common on a 50/50 basis.

https://www.thisismoney.co.uk/money/pensions/article-5966805/What-life-trust-family-home-trustees-duties.html

It seems that the terms of the Trust permitted the sale of the property in the life tenant's lifetime and the application of the proceeds to the purchase of another property.

As I (no expert) understand it, as the life tenant had a life interest in the mother's share, he had the right to use the proceeds of her half to buy the property together with whatever portion he chose of his own share.

I do not see how this has resulted in the Trustees having a two thirds share as the OP seems to think.

https://library.croneri.co.uk/cch_uk/etc/62405 may be relevant.

The OP could consult HMRC.

https://www.gov.uk/government/publications/trusts-and-capital-gains-tax-hs294-self-assessment-helpsheet/vdsv

p00hsticks

xylophone wrote: »

As I (no expert) understand it, as the life tenant had a life interest in the mother's share, he had the right to use the proceeds of her half to buy the property together with whatever portion he chose of his own share.

I do not see how this has resulted in the Trustees having a two thirds share as the OP seems to think.

If , for example. the original house sold for £400k, and the life tenant then used £300k of the proceds to buy a smaller property, retaining £100k for themselves, wouldn't the result be that the trustees have a two-thirds (£200k) interest in the smaller home ?

TBagpuss

p00hsticks wrote: »

If , for example. the original house sold for £400k, and the life tenant then used £300k of the proceds to buy a smaller property, retaining £100k for themselves, wouldn't the result be that the trustees have a two-thirds (£200k) interest in the smaller home ?

Yes. Normally it is done the other way round - e.g. £300K used to pay for the new house, £100K freed up to pay to the beneficiaries of the trust, and new property owned 1/3 trust, 2/3 survivor, but depending on the terms of the trust and and agreements between the parties concerned it could have been done the other way.

I agree that OP needs to take advice from a tax specialist to determine whether any CGT is payable and by whom. I *think* that the trust may be a legal person so it is the trust as an entity, rather than the trustees as individuals, who will be liable, but I am not a trust or tax expert, and it may well depend on the type of trust in any event.

xylophone

Could the value of the Trust share at sale of the family home just be an absolute cash sum owed to the Trustees, (half the sale proceeds) rather than a fixed proportion of the value of the new property?

That is to say, if (for example) the value of the Trustees' share was £200,000, then that is the amount owed on sale of the bungalow, rather than a proportion of the sale proceeds of the bungalow?

badger09

xylophone wrote: »

Could the value of the Trust share at sale of the family home just be an absolute cash sum owed to the Trustees, (half the sale proceeds) rather than a fixed proportion of the value of the new property?

That is to say, if (for example) the value of the Trustees' share was £200,000, then that is the amount owed on sale of the bungalow, rather than a proportion of the sale proceeds of the bungalow?

That is exactly how I dealt with a similar situation as executor of my late sister's estate recently. A Life Interest Trust had been set up on the death of her husband in 2012. There was absolutely no documentation, despite me having explained the possible repercussions to her at the time:(.

She had downsized and kept the whole of the balance from the sale of the matrimonial home. In the absence of any evidence to the contrary, I treated the Trust's 'share' as being equal to her late husband's share of the former home.

The estate was not liable to IHT and no tax liability for the Trust. (I had discussed this approach with the solicitors who had 'advised' her on the sale & purchase and they agreed it was a credible approach).

getmore4less

When downsizing with a life interest trust, the equity released remains part of the trust and the life tenant continues to benefit from it(not use the capital).

Cash can be taken out that has special rules.
I think it becomes a PET for the life tenants estate.

IPDI trust is the magic google term for these sort of trusts.

TrickyNicky

Hi to you all and thank you. Keep Pedalling, I believe the Trust is known as a 'Discretionary Trust' set up as a Deed of Variation to my Mums Will. This allowed the 3 trustees to 'use their discretion' in deciding what to do with my Mums half share of the original family home. When my Dad moved 7 years ago to a smaller property, the idea was to buy the new home completely with the trust money so that my Dad could use his share as income/pension etc. The new home was more expensive than the trust could afford so my Dad used some of his proceeds from the sale of the old home to purchase it. As stated above, this is why the Trust owned approx two thirds and my Dad one third.

Now that this home has been sold, the Discretionary Trust has been dissolved /closed down or whatever the legal word is. The money for the property has been paid to the executors to distribute to the beneficiaries. Effectively there is no longer a Discretionary Trust in place.

If Macman is correct and we have to pay CGT on two thirds of the £50,000 profit = £33,000, do the executors pay the CGT on this amount or do they first distribute the money and then each beneficiary pays CGT on their quarter share of this amount (there are 4 beneficiaries)? i.e. is the allowance per person? If so, they would each receive £8,250 of this profit and if there is an allowance of £11,700 for each of us then non of us would need to pay CGT at all?! Or have I totally got this wrong?

Again thank you all for your thoughts/ideas. It does look like we will have to take further legal advice on this.