Property held part in trust, part under name. Looking to buy out part of the trust - best way?

Disjoint

Hi all - bit of a complex one.

My wife is looking to buy my sister in law's (SIL) share of her house. Currently the house is held 1/4 under SIL, 1/4 under my wife, 1/2 under a trust that is owned 50/50 between my wife and her SIL. This will be a cash transaction. The structure is painful. The trust's tax base reset recently (every ten years) and we paid the relevant capital gains tax on the appreciated gains two years ago on half of the property.
We will be paying market price for it, minus agency fees. Got three valuations for the house from three different estate agents and will go with the average discounted by 2% so that there is no issues with SIL.
Now I really don't like the structure the house is held under, have done my taxes my whole life, my wife doesn't work and this is her main asset and I want this to be clean. It's a nice house and in terms of estate planning if we keep it I would like to pass it on to my daughters unencumbered when my wife and I are ready to retire.

My idea was to buy out 1/4 of my SIL and then buy back the trust to have it all under my wife's name (as tax base reset recently only real cost would be stamp duty, painful but for the luxury of having a clean asset I'll do it). We have to pay an accountant every year just to do the trust accounting, so getting the house out of trust would avoid having to do this anymore. Having the house fully under her name would also make it easier to borrow against the house. Before I do this, are there any advantages today in keeping the house in a trust? I have moved abroad and my wife will be joining me abroad when the new school year begins, so she will be a UK taxpayer and resident while I sort this transaction for her.

Is what I am looking to do stupid or is there another argument about buying my SIL out of the trust and moving the rest of the property in said trust? Basically what would you recommend, knowing the trust part of the trust capital gains has basically been paid.

Jeremy535897

You need to take proper professional advice. There are a number of misconceptions in your post. Trust property is not "reset" for capital gains tax every ten years. Certain types of trust have an inheritance tax charge every ten years. Individuals cannot "own" trusts. There is a trust deed that sets out who the trustees (the legal owners of the trust assets) and the beneficiaries (who benefit under the terms of the trust, whether at the discretion of the trustees or otherwise) are. Nobody can advise you on whether it is beneficial to maintain the trust (or indeed whether it is even possible to wind it up now) without knowing its terms, and what all the tax and legal issues are.

xylophone

You need  EXPERT advice from a solicitor  and very possibly also from a chartered accountant  specialising in Trust taxation.

A firm registered with STEP will have a partner expert in Trusts and also (almost certainly) a conveyancing expert and will probably be able to refer you to an appropriate firm of accountants if required.

https://content.step.org/step-directory

SDLT_Geek

Disjoint said:

Hi all - bit of a complex one.

My wife is looking to buy my sister in law's (SIL) share of her house. Currently the house is held 1/4 under SIL, 1/4 under my wife, 1/2 under a trust that is owned 50/50 between my wife and her SIL. This will be a cash transaction. The structure is painful. The trust's tax base reset recently (every ten years) and we paid the relevant capital gains tax on the appreciated gains two years ago on half of the property.
We will be paying market price for it, minus agency fees. Got three valuations for the house from three different estate agents and will go with the average discounted by 2% so that there is no issues with SIL.
Now I really don't like the structure the house is held under, have done my taxes my whole life, my wife doesn't work and this is her main asset and I want this to be clean. It's a nice house and in terms of estate planning if we keep it I would like to pass it on to my daughters unencumbered when my wife and I are ready to retire.

My idea was to buy out 1/4 of my SIL and then buy back the trust to have it all under my wife's name (as tax base reset recently only real cost would be stamp duty, painful but for the luxury of having a clean asset I'll do it). We have to pay an accountant every year just to do the trust accounting, so getting the house out of trust would avoid having to do this anymore. Having the house fully under her name would also make it easier to borrow against the house. Before I do this, are there any advantages today in keeping the house in a trust? I have moved abroad and my wife will be joining me abroad when the new school year begins, so she will be a UK taxpayer and resident while I sort this transaction for her.

Is what I am looking to do stupid or is there another argument about buying my SIL out of the trust and moving the rest of the property in said trust? Basically what would you recommend, knowing the trust part of the trust capital gains has basically been paid.

You mention stamp duty.  If this is a property in England and stamp duty land tax is in point, then you need to watch timing and the 2% extra SDLT for non-UK residents.  This could be an extra cost if you have been abroad for 183 days or more by the time the transaction happens.