ANY CGT/IHT?

Stovesurface

In 2012 our parents transferred their property to myself and my two siblings. All three of our names appear on the land registry, it states title absolute and value stated as at June 2012 £300,000.  

There is a Deed of trust (also referred to as a lifetime asset trust) stipulating that my parents retain the right to live in the property, no rent to be payable and that we the children (trustees) do not have any right to sell the house without their permission.  There is a will 

Our Father died in 2019  and our mother continued to live independently in the house up until late June 2024 when she went into a care home (self-funded). Around that time, we had the house valued at £500,000. Sadly, her time in the care home was short as she died two months later in August 2024. 

Now that we are in the process of selling the house, my three points I would appreciate advice on are as follows: 

 
1. Does this mean our parents made us three siblings a gift of the property and that we own it and have owned it since it was gifted to us? 

2. Because our Parents did not pay rent and we did not have the right to sell the house without their permission, does the house count as a ‘gift with reservation’ and should it have been added to the value of her estate when she died for purposes of calculation of IHT?   

3. With CGT implications in mind when it comes to selling the property, do we need to establish the difference between the value of the property at the time it was gifted to us and the value at the time of sale and that difference is our gain for CGT purposes, or is it the difference between the value of the property at the time of our Mother’s death and the value at the time of the sale?  

Any advice would very much be appreciated. 

Keep_pedalling

1. Yes.

2. Yes, it was a gift with RoB, so for IHT purposes if formed part of your father and mother’s estate. Assuming this was a joint gift, then the amount of transferable NRB from your father’s is reduced by 50% of the house value at the time of his death.  The other 50% forms part of your mother’s estate. I also believe the because the gift was made prior to the introduction of the residential NRB neither of those exemptions are available either. 

3. CGT will be based on the gain from the date of the gift.

Olinda99

I think.that was a very expensive mistake - not only will.you have to pay CGT but you have lost the additional 175k residential allowance for IHT

poseidon1

Keep_pedalling said:

1. Yes.

2. Yes, it was a gift with RoB, so for IHT purposes if formed part of your father and mother’s estate. Assuming this was a joint gift, then the amount of transferable NRB from your father’s is reduced by 50% of the house value at the time of his death.  The other 50% forms part of your mother’s estate. I also believe the because the gift was made prior to the introduction of the residential NRB neither of those exemptions are available either. 

3. CGT will be based on the gain from the date of the gift.

Can't agree with the opinion re CGT

The terms of trust indicate interests in possession in favour of H and W, with power of veto of sale.  Despite all three children showing on the Land registry as legal owners with title Absolute, this is  overridden  by their inability to sell or otherwise deal with the property in contravention of the trust. At most therefore, they hold as trustees subject to parent's beneficial  occupation rights.

In view of the above I am of the view that all conditions for Principle Property Relief apply in this instance  relating to the family home up until vacated by the mother - see explanatory HMRC guidance  below

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65400

However as set out in guidance the children must claim the relief, it is not automatically assumed to apply. May  therefore be best for them to enlist the services of a STEP qualified Chartered Accountancy firm to assist with CGT reporting on their joint behalf when the time comes..

As for the  residence nil rate band , there may well be a question as to its availability in these circumstances, but if the mother's gross estate ( inclusive of the property) was below £650k at death, it may not be necessary to explore whether it is needed to avoid IHT.

This is because I am also of the view that the father's £325k nil rate band remained unused at death unless he had gifted other assets to his children separate and distinct from the house.

The Widow's right of occupation over the  entire property together with her  ongoing veto over future sale, prevented any overridding beneficial rights to the property vesting in favour of the children on his death beyond that which had previously been defined under the terms of the trust (their entitlement to the property was neither  improved or enlarged by his death).

Having said all this, if probate has yet to be obtained for the mother's estate, this issue  should be settled with HMRC by submitting a copy of the original trust deed in support of a claim to the transferable NRB. If the family are doing this themselves, may be best to enlist a STEP qualified solicitor to present/argue this point on their behalf.

The trust may well have been ill-advised at the time, but would certainly appear to have dodged a CGT liability on children.   As  for IHT,  probably it was neutral. No savings, but arguably  no increase over and above the outcome without it ( assuming of course  I am correct re the transferable NRB).

Keep_pedalling

Doesn’t a deed of trust simply document how a property is owned among tenants in common rather than actually create a trust?  They are normally used to show that TiC held a property in unequal shares. Professional advice definitely required. 

poseidon1

Keep_pedalling said:

Doesn’t a deed of trust simply document how a property is owned among tenants in common rather than actually create a trust?  They are normally used to show that TiC held a property in unequal shares. Professional advice definitely required. 

The OP mentioned it was Lifetime Asset Trust, the format of which I am fairly familiar with  - they are similar to Asset Protection Trusts aimed at avoiding nursing home fees. 

Typically these are formal settlor interested trusts with settlors retaining joint and several rights of occupation and veto over property  sale whilst in occupation  ( as seem to be the case here).  Since there is an express trust (in writing), with the children as de facto trustees ( the sole  legal owners on the title),  these are all the ingredients to ensure PPR is retained for CGT purposes as set out in the HMRC guidance provided.  It would not surprise me if a Form A restriction had been lodged with the land registry as part of the original creation of this arrangement.

However if the  OP would care to  provide a redacted copy of the pertinent clauses of the  trust deed this should  confirm ( or not) my assumptions.

 If there is in fact no Lifetime Asset Trust in exsistence  then I would certainly concede the likelihood of adverse CGT and IHT consequences.

 Either way, professional advice will ultimately be required to navigate the positive or negative  tax outcomes. Clearly the OP will not have the competency to handle the matter themselves.

Stovesurface

Thank you so much for all your helpful comments. I am new to this forum and believe I am not able to post links and pictures,  so will not be able to provide a redacted copy of the pertinent clauses of the trust deed. I totally agree that professional advice is required and will be taking the documents to a STEP qualified solicitor and or chartered accountancy firm. It was the Solicitor's covering letter addressed to my parents with stated in the heading 'Re: your lifetime asset trust & transfer documents' but the actual deed is worded as 'Deed of Trust' Hope this clarifies.  Also, I cannot see a 'Form A' along with the land registry document.

Stovesurface

I took photos of the pertinent clauses, hope it works here!

poseidon1

Stovesurface said:

I took photos of the pertinent clauses, hope it works here!

Thanks for this.

Confirms my intial thoughts precisely ie a classic  settlor interest trust for your parents with remainder in favor of children on termination of the settlement. I assume you and our siblings were named as trustees in the preamble to the deed?

You will also note your parents were not only entitled to property occupation, but trust capital and/or  investment income if property sold and funds not reinvested in another property
[ clause 3(c)(i) refers ] . In other words a traditional joint life tenancy in all senses of the word but devoid of any IHT benefits other than preserving the spousal transferable nil rate bands.

As for the Form A restriction this is a Land Registry formality that the solicitor should have dealt with direct with the LR after the trust deed was executed, so not something you would necessarily see evidence of unless you check the register.

However, you will undoubtedly need assistance from an appropriate professional in order to secure the CGT and IHT benefits I mentioned. From what you have supplied, this should not be a major issue assuming the professional views the trust  in the same way.

Stovesurface

Yes, you are correct, we were named as the trustees. Thanks again for sharing your knowledge and understanding of the trust terms.  It is certainly looking more hopeful than I thought would be the case before posting on this forum.  Rest assured I will seek the professional assistance you recommended.