Will / trust

jem16

Skint_yet_Again said:

Thank you @poseidon1 the house has been valued by 3 estate agents and top value is £170k from 2 agents so I will use that for probate. If the house sells for more I see that you said the trust remaindermen would be personally responsible for any CGT on the trust half. I was under the impression that the trust had ended & the property was not transferred to the remaindermen until after it is sold? I’ve never calculated CGT but assume can deduct estate agent/ solicitor/ accountant fees? Could we also deduct unoccupied house insurance fee or is that an expense of the estate? 

I’m interested in the answer to this too as in the same position although as things stand the house has sold for probate (Confirmation) value anyway so there should be no CGT anyway.

I was under the same impression as you. Brother and I are executors and as Mum’s will set up the Liferent Trust in 2024, also remaindermen. Trust ended on Dad’s death early 2025. 

I assumed that there would be one CGT allowance due to the estate to include the whole CGT on the house if applicable. @poseidon1 had been helping me on my own post as I’ve not been greatly impressed with how my solicitor is handling, or not handling, the estate reporting to HMRC.

poseidon1

I have noted the difference interpretation of how CGT disposals of life interest trust assets are dealt with after death of life tenant and remaindermen are now absolutely entitled to those assets against the trustees. Fortunately the relatively short summation from HMRC manuals attempts to explain as below -

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem6361

Key points to note for life interest trusts:

* On death of life tenant, trust assets are amalgamated with personal assets of the deceased but purely for the purposes of  ascertaining the overall charge to IHT. Here the deceased's nil rate band is shared proportionally between the life interest trustees and the deceased estate executors. 

* Any IHT that may then become due is split between the life interest trustees and the estate, with each liable for their own share.

* Importantly there has been no de facto merger of life interest trust assets ( following death) with the free estate assets, other than to calculate IHT. The life interest trustees have now become bare trustees answerable to the remaindermen and must convey to them the trust fund net of  the trust's share of any IHT due. 

* Where, as in the present case, the trustees will be party to a sale of an asset which is also owned by the free estate ( ie the 50:50 shares of the house), as indicated by HMRC guidance the trustees will be selling  their share as bare trustees for the absolute benefit of the remaindermen with any gain arising after the market value uplift, attributable to the remainderman in their personal capacity with their individual CGT exemptions available as a result.

* in the case of the executors of the free estate, their sale follows usual estate sale principles with a single estate CGT exemption available for up to 3 tax years post death.

I admit, this continued separation between trust and estate assets after death  of life tenant is more difficult to discern where trustees, trust remainderman, estate executors, and residuary estate beneficiaries are all the same people wearing multiple hats they are largely unaware of and the primary asset is the family home. In that scenario they will more than likely see themselves as mere residuary estate beneficiaries, overlooking the fact there is also a separate  'bare trust' that can work to their advantage. 

That separation is more easily recognised ( and understood ) where the trustees and beneficiaries of the life interest trust, differ completely from those who benefit from the deceased's estate.

 Outside of professionally administered trusts ( my previous area of work), lay people will more readily recognise this separation  in cases where the married couple have children from prior relationships , and each parent wants to make separate and distinct provision for their own offspring using an IPDI trust for that purpose. 

As we have seen on this forum, in these blended family situations the children of the first spouse to die will often  be trustees and remainderman of one half of the house occupied by the survivor, whilst children of the surviving parent/life tenant end up being  executors of that deceased's estate. Here there should be less scope for confusion as to their respective roles, and duties and specifically who is responsible for and liable to CGT when  the house is eventually sold.

As a final observation, I have no doubt many families in the OP's circumstance lose the opportunity to apply multiple CGT exemptions where the family home is eventually sold, due to not understanding the concept of a continuing 'bare trust' for remainderman of the IPDI trust, which can potentially be utilised to their advantage. 

Skint_yet_Again

Let’s hope the house doesn’t sell for more than the probate price then 😳 If it does and there is a gain after allowable expenses and exemption I will appoint a solicitor or an accountant? 

poseidon1

jem16 said:

Skint_yet_Again said:

Thank you @poseidon1 the house has been valued by 3 estate agents and top value is £170k from 2 agents so I will use that for probate. If the house sells for more I see that you said the trust remaindermen would be personally responsible for any CGT on the trust half. I was under the impression that the trust had ended & the property was not transferred to the remaindermen until after it is sold? I’ve never calculated CGT but assume can deduct estate agent/ solicitor/ accountant fees? Could we also deduct unoccupied house insurance fee or is that an expense of the estate? 

I’m interested in the answer to this too as in the same position although as things stand the house has sold for probate (Confirmation) value anyway so there should be no CGT anyway.

I was under the same impression as you. Brother and I are executors and as Mum’s will set up the Liferent Trust in 2024, also remaindermen. Trust ended on Dad’s death early 2025. 

I assumed that there would be one CGT allowance due to the estate to include the whole CGT on the house if applicable. @poseidon1 had been helping me on my own post as I’ve not been greatly impressed with how my solicitor is handling, or not handling, the estate reporting to HMRC.

OP, as I recall in your circumstance the house sold at a lost equal to the attributable costs of sale.

However had there been a gain, 50% would be attributable to you and your brother as the (Scottish) Life Rent Trust Fiars (remaindermen) so two lots of personal CGT exemptions available , with the other 50% owned by  your father's personal estate attracting the single estate CGT exemption.

As an additional benefit, if you were both firmly basic rate tax payers, you would pay CGT at 18% on any exposed 'bare trust' gain, whilst the estate would be subject to the 24% flat rate. So had CGT been an issue, there were some potential tax savings to be had,  in addition to multiple CGT exemptions.

jem16

poseidon1 said:

jem16 said:

Skint_yet_Again said:

Thank you @poseidon1 the house has been valued by 3 estate agents and top value is £170k from 2 agents so I will use that for probate. If the house sells for more I see that you said the trust remaindermen would be personally responsible for any CGT on the trust half. I was under the impression that the trust had ended & the property was not transferred to the remaindermen until after it is sold? I’ve never calculated CGT but assume can deduct estate agent/ solicitor/ accountant fees? Could we also deduct unoccupied house insurance fee or is that an expense of the estate? 

I’m interested in the answer to this too as in the same position although as things stand the house has sold for probate (Confirmation) value anyway so there should be no CGT anyway.

I was under the same impression as you. Brother and I are executors and as Mum’s will set up the Liferent Trust in 2024, also remaindermen. Trust ended on Dad’s death early 2025. 

I assumed that there would be one CGT allowance due to the estate to include the whole CGT on the house if applicable. @poseidon1 had been helping me on my own post as I’ve not been greatly impressed with how my solicitor is handling, or not handling, the estate reporting to HMRC.

OP, as I recall in your circumstance the house sold at a lost equal to the attributable costs of sale.

However had there been a gain, 50% would be attributable to you and your brother as the (Scottish) Life Rent Trust Fiars (remaindermen) so two lots of personal CGT exemptions available , with the other 50% owned by  your father's personal estate attracting the single estate CGT exemption.

As an additional benefit, if you were both firmly basic rate tax payers, you would pay CGT at 18% on any exposed 'bare trust' gain, whilst the estate would be subject to the 24% flat rate. So had CGT been an issue, there were some potential tax savings to be had,  in addition to multiple CGT exemptions.

Yes you're correct in that the value of the house for Confirmation was £230k and the still to be concluded sale is also £230k so no CGT due on house sale.

Interesting though that we could have used basically 3 lots of CGT allowances.

I actually started another post earlier as I have this bad feeling that the Confirmation application didn't use the totally correct figures. Perhaps you have a comment on that?

Skint_yet_Again

poseidon1 said:

I have noted the difference interpretation of how CGT disposals of life interest trust assets are dealt with after death of life tenant and remaindermen are now absolutely entitled to those assets against the trustees. Fortunately the relatively short summation from HMRC manuals attempts to explain as below -

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem6361

Key points to note for life interest trusts:

* On death of life tenant, trust assets are amalgamated with personal assets of the deceased but purely for the purposes of  ascertaining the overall charge to IHT. Here the deceased's nil rate band is shared proportionally between the life interest trustees and the deceased estate executors. 

* Any IHT that may then become due is split between the life interest trustees and the estate, with each liable for their own share.

* Importantly there has been no de facto merger of life interest trust assets ( following death) with the free estate assets, other than to calculate IHT. The life interest trustees have now become bare trustees answerable to the remaindermen and must convey to them the trust fund net of  the trust's share of any IHT due. 

* Where, as in the present case, the trustees will be party to a sale of an asset which is also owned by the free estate ( ie the 50:50 shares of the house), as indicated by HMRC guidance the trustees will be selling  their share as bare trustees for the absolute benefit of the remaindermen with any gain arising after the market value uplift, attributable to the remainderman in their personal capacity with their individual CGT exemptions available as a result.

* in the case of the executors of the free estate, their sale follows usual estate sale principles with a single estate CGT exemption available for up to 3 tax years post death.

I admit, this continued separation between trust and estate assets after death  of life tenant is more difficult to discern where trustees, trust remainderman, estate executors, and residuary estate beneficiaries are all the same people wearing multiple hats they are largely unaware of and the primary asset is the family home. In that scenario they will more than likely see themselves as mere residuary estate beneficiaries, overlooking the fact there is also a separate  'bare trust' that can work to their advantage. 

That separation is more easily recognised ( and understood ) where the trustees and beneficiaries of the life interest trust, differ completely from those who benefit from the deceased's estate.

 Outside of professionally administer trusts ( my previous area of work), lay people will more readily recognise this separation  in cases where the married couple have children from prior relationships , and each parent wants to make separate and distinct provision for their own offspring using an IPDI trust for that purpose. 

As we have seen on this forum, in these blended family situations the children of the first spouse to die will often  be trustees and remainderman of one half of the house occupied by the survivor, whilst children of the surviving parent/life tenant end up being  executors of that deceased's estate. Here there should be less scope for confusion as to their respective roles, and duties and specifically who is responsible for and liable to CGT when  the house is eventually sold.

As a final observation, I have no doubt many families in the OP's circumstance lose the opportunity to apply multiple CGT exemptions where the family home is eventually sold, due to not understanding the concept of a continuing 'bare trust' for remainderman of the IPDI trust, which can potentially be utilised to their advantage. 

So who owns the house? Are council tax correct that the remaindermen own 50% ?

poseidon1

Skint_yet_Again said:

poseidon1 said:

I have noted the difference interpretation of how CGT disposals of life interest trust assets are dealt with after death of life tenant and remaindermen are now absolutely entitled to those assets against the trustees. Fortunately the relatively short summation from HMRC manuals attempts to explain as below -

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem6361

Key points to note for life interest trusts:

* On death of life tenant, trust assets are amalgamated with personal assets of the deceased but purely for the purposes of  ascertaining the overall charge to IHT. Here the deceased's nil rate band is shared proportionally between the life interest trustees and the deceased estate executors. 

* Any IHT that may then become due is split between the life interest trustees and the estate, with each liable for their own share.

* Importantly there has been no de facto merger of life interest trust assets ( following death) with the free estate assets, other than to calculate IHT. The life interest trustees have now become bare trustees answerable to the remaindermen and must convey to them the trust fund net of  the trust's share of any IHT due. 

* Where, as in the present case, the trustees will be party to a sale of an asset which is also owned by the free estate ( ie the 50:50 shares of the house), as indicated by HMRC guidance the trustees will be selling  their share as bare trustees for the absolute benefit of the remaindermen with any gain arising after the market value uplift, attributable to the remainderman in their personal capacity with their individual CGT exemptions available as a result.

* in the case of the executors of the free estate, their sale follows usual estate sale principles with a single estate CGT exemption available for up to 3 tax years post death.

I admit, this continued separation between trust and estate assets after death  of life tenant is more difficult to discern where trustees, trust remainderman, estate executors, and residuary estate beneficiaries are all the same people wearing multiple hats they are largely unaware of and the primary asset is the family home. In that scenario they will more than likely see themselves as mere residuary estate beneficiaries, overlooking the fact there is also a separate  'bare trust' that can work to their advantage. 

That separation is more easily recognised ( and understood ) where the trustees and beneficiaries of the life interest trust, differ completely from those who benefit from the deceased's estate.

 Outside of professionally administer trusts ( my previous area of work), lay people will more readily recognise this separation  in cases where the married couple have children from prior relationships , and each parent wants to make separate and distinct provision for their own offspring using an IPDI trust for that purpose. 

As we have seen on this forum, in these blended family situations the children of the first spouse to die will often  be trustees and remainderman of one half of the house occupied by the survivor, whilst children of the surviving parent/life tenant end up being  executors of that deceased's estate. Here there should be less scope for confusion as to their respective roles, and duties and specifically who is responsible for and liable to CGT when  the house is eventually sold.

As a final observation, I have no doubt many families in the OP's circumstance lose the opportunity to apply multiple CGT exemptions where the family home is eventually sold, due to not understanding the concept of a continuing 'bare trust' for remainderman of the IPDI trust, which can potentially be utilised to their advantage. 

So who owns the house? Are council tax correct that the remaindermen own 50% ?

In your case since the  'bare trust' and the estate own 50:50, there is no material difference in the identity of who is responsible for council tax, although I am a little surprised a council tax functionary had sufficient knowledge and understanding to determine that the remaindermen are indeed  now  de facto 50% owners of the property.

No doubt  their understanding of this ownership structure will affect how much and for how long they will grant an empty property council tax charge exemption.

As you and your siblings are the sole beneficiaries in each case,  the estate picking up the tab for all the property outgoings pre sale, is neither here nor there, the expense comes from the same collective pockets.

As an observation and for the benefit of blended family trust situations, this would be a very different outcome if the ' bare trust' had different beneficiaries from the main estate. In that scenario the 'bare trust' beneficiaries would have an accumulating debt equal to their half share of property outgoings , which they could either settle from their own pockets, or await the property sale with the debt then deducted from their presumptive half share of proceeds.

Fortunately not a scenario you need contemplate.

Skint_yet_Again

RAS said:

Dad was the beneficial owner of the whole house, even if half was held in trust for his children.

You and your siblings do not yet own half or the whole of the property. That can only happen after probate is granted. It is currently held in trust by the executors.

The fact that the executors/trustees of dad's estate are also beneficiaries does not make them owners.

Now I am confused 😵‍💫 🤯

Skint_yet_Again

mybestattempt said:

Skint_yet_Again said:

Thank you @mybestattempt you are right I am not reassured by HMRC response. I will telephone and complain and seek clarification but believe that they will still make me register. Thank you for your help & the links. 

Thank you @poseidon1 the house has been valued by 3 estate agents and top value is £170k from 2 agents so I will use that for probate. If the house sells for more I see that you said the trust remaindermen would be personally responsible for any CGT on the trust half. I was under the impression that the trust had ended & the property was not transferred to the remaindermen until after it is sold? I’ve never calculated CGT but assume can deduct estate agent/ solicitor/ accountant fees? Could we also deduct unoccupied house insurance fee or is that an expense of the estate? 

If remaindermen are personally responsible for half any potential CGT could this be taken from the estate shares before distribution? If necessary 2 executors / remaindermen/ beneficiaries could pay from personal funds but we would have to pay for 3rd remainderman/ beneficiary up front and would likely not get it back once the estate has been distributed. (The 3rd remainderman has renounced as executor of trustee / life tenant). 

I have looked at the links. If we have to register the trust I would imagine it would be by me as executor of the deceased trustee / life tenant (dad) for a deceased settlor (mum) of a non-taxable express trust. It says I will need the name of the trust (there is no name/ no trust deed) & details of any land or property that the trust has purchased (none as property was transferred in will?). So I believe I would not include details 

I'm afraid I don't agree with @poseidon1 about the capital gains position.

The IPDI trust created by your Mum's will gave your Dad, as surviving spouse, an interest in possession in the property.

Where there is an IPDI trust in favour of a spouse the trust assets form part of the surviving spouse's estate on death, so your Dad's estate includes the whole property.

• During the period of administration of that estate the personal representatives/executors own the assets of the estate:

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem6032

If the property is sold by the executors during the period of administration (that is from the estate) the estate is liable for any CGT on the whole property.


• Only if the executors were to convey/transfer/assent ownership of the property out of the estate to the remaindermen/beneficiaries before it is sold does each beneficiary becomes the owner of their respective share of the property and have a personal CGT liabilty when sold:

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem6072


In your situation, as executors, you will not be conveying/transferring/ assenting the property out of the estate before it is sold, so any CGT liability is that of the estate.

Perhaps when you do sell the property you will come back here for any further advice you need as any CGT report will be due 60 days after the sale.

I thought the IPDI trust ended when dad (trustee & life tenant) died. What is a bare trust?  I will have to get a solicitor 

jem16

poseidon1 said:

Skint_yet_Again said:

poseidon1 said:

I have noted the difference interpretation of how CGT disposals of life interest trust assets are dealt with after death of life tenant and remaindermen are now absolutely entitled to those assets against the trustees. Fortunately the relatively short summation from HMRC manuals attempts to explain as below -

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem6361

Key points to note for life interest trusts:

* On death of life tenant, trust assets are amalgamated with personal assets of the deceased but purely for the purposes of  ascertaining the overall charge to IHT. Here the deceased's nil rate band is shared proportionally between the life interest trustees and the deceased estate executors. 

* Any IHT that may then become due is split between the life interest trustees and the estate, with each liable for their own share.

* Importantly there has been no de facto merger of life interest trust assets ( following death) with the free estate assets, other than to calculate IHT. The life interest trustees have now become bare trustees answerable to the remaindermen and must convey to them the trust fund net of  the trust's share of any IHT due. 

* Where, as in the present case, the trustees will be party to a sale of an asset which is also owned by the free estate ( ie the 50:50 shares of the house), as indicated by HMRC guidance the trustees will be selling  their share as bare trustees for the absolute benefit of the remaindermen with any gain arising after the market value uplift, attributable to the remainderman in their personal capacity with their individual CGT exemptions available as a result.

* in the case of the executors of the free estate, their sale follows usual estate sale principles with a single estate CGT exemption available for up to 3 tax years post death.

I admit, this continued separation between trust and estate assets after death  of life tenant is more difficult to discern where trustees, trust remainderman, estate executors, and residuary estate beneficiaries are all the same people wearing multiple hats they are largely unaware of and the primary asset is the family home. In that scenario they will more than likely see themselves as mere residuary estate beneficiaries, overlooking the fact there is also a separate  'bare trust' that can work to their advantage. 

That separation is more easily recognised ( and understood ) where the trustees and beneficiaries of the life interest trust, differ completely from those who benefit from the deceased's estate.

 Outside of professionally administer trusts ( my previous area of work), lay people will more readily recognise this separation  in cases where the married couple have children from prior relationships , and each parent wants to make separate and distinct provision for their own offspring using an IPDI trust for that purpose. 

As we have seen on this forum, in these blended family situations the children of the first spouse to die will often  be trustees and remainderman of one half of the house occupied by the survivor, whilst children of the surviving parent/life tenant end up being  executors of that deceased's estate. Here there should be less scope for confusion as to their respective roles, and duties and specifically who is responsible for and liable to CGT when  the house is eventually sold.

As a final observation, I have no doubt many families in the OP's circumstance lose the opportunity to apply multiple CGT exemptions where the family home is eventually sold, due to not understanding the concept of a continuing 'bare trust' for remainderman of the IPDI trust, which can potentially be utilised to their advantage. 

So who owns the house? Are council tax correct that the remaindermen own 50% ?

In your case since the  'bare trust' and the estate own 50:50, there is no material difference in the identity of who is responsible for council tax, although I am a little surprised a council tax functionary had sufficient knowledge and understanding to determine that the remaindermen are indeed  now  de facto 50% owners of the property.

There is a difference though as the councils usually state that the estate must own 100% of the property for there to be a council tax exemption whilst probate goes through and then for six months afterwards.

In the end we explained that there was a Liferent Trust in operation and much to my surprise the council granted the exemption.