CGT on Discretionary Trust Following Beneficiary Death

Coco1964

Hi, and thanks in advance for any responses.

(Based in Scotland)

My mother and father put their house into a Family Protection Trust (Discretionary Trust) in 2009. My father died in 2019 and mum died December 2025. They had lived in the house since 1958, and mum still lived there until her death. We are now in the process of selling the house. I realise that we have to pay CGT within 60 days of the house sale being completed. I'm struggling to find any solicitor or tax accountant that has the expertise to assist in the matter of calculating CGT and deal with any other potential implications of the Trust. I've been turned away by a few.

I have a few questions that can hopefully be answered by some of you lovely knowledgeable people.

(My sister and myself are the remaining living Trustees on the Trust)

1. The house went into Trust in 2009, and mum died 2025. For CGT purposes, should I be calculating the gain from 2009 to 2025, OR does the gain only count from the point mum died in 2025 until the house sells?
2. I've read into the matter of Private Residential Relief, and am getting conflicting viewpoints. As mum, a beneficiary, lived in the house up until she passed, does that mean there is potentially no CGT to pay at all?
3. I understand that CGT would be charged at 24%, and there's an allowance of £1500 that can be deducted. As my sister is also a Trustee, do we both need to file a tax return based on half the profit (if applicable) with each of us claiming £1500? Also, a wet room extension was added in 2018 at cost circa £15,000. Can this be deducted as an improvement that added value?
4. Is it reasonable to assume I can deal with this matter myself, or is it too complex a subject, and would definitely need professional advice?

Hopefully all the above makes sense, and I look forward to reading any assistance that can be offered.

poseidon1

On the assumption your parents were not legally qualified themselves they could not have created this settlement without professional assistance. Who were the advisers that did this, and why is it not possible for you to return to them for professional assistance?

In any event, assuming this was actually a discretionary trust when 1st established in 2009, the property should have been valued and if that value exceeded £325k at the time IHT may have been chargeable at 20%. If below £325k no reporting required

In 2019, the trust hit its 1st 10th year anniversary and was required to revalue the property at that time. Again if the value exceeded £325k an IHT liability at 6% on the excess would have arisen and needed to be paid. Even if that value were below the NRB ( so no tax due), a formal IHT 100 form would still have needed to be submitted to HMRC if the value was more than £260k ( 80% of the NRB).

From 2017 onwards the trust was required to be registered on HMRC's trust register ( with penalties for non compliance), which the trustees were required to keep updated for all key trust events, including the CGT disposal you are now in the middle of.

If the above IHT and HMRC compliance issues are now news to you, its not surprising you have found no one prepared to try and calculate the trust's CGT exposure at the current time, if there is no evidence the trust has ever been tax compliant or administered properly in the past.

Needless to say this is not a matter you can handle on a DIY basis yourself, discretionary trust taxation is as complex as it gets when it comes to the trust arena,

You urgently need the assistance of a STEP qualified practitioner. STEP is the Society of Trust and Estate Practitioners, and represent the gold standard in handling trust matters.

You can check the STEP directory to locate appropriate firms in your region, but in the meantime you may find the following article of interest from a STEP practitioner in Edinburgh. Maybe worth getting a fixed fee quote for the 1 hour consultation they offer, to get an idea of how to progress matters from this less than optimal starting point you find yourselves in -

https://www.murraybeith.co.uk/new/trusts/family-protection-trusts-frequently-asked-questions.html?tmpl=component&print=1&format=print#:~:text=What%20is%20a%20Family%20Protection,(bankruptcy%2C%20divorce%20etc).

Cairnpapple

If this was by any chance a McClure Solicitors Family Protection Trust, I believe there are campaign groups/victims groups who I imagine have links with solicitors and accountants who have already worked on other McClure cases.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81883177#Comment_81883177

Indeed, that thought had occurred to me also.

Keep_pedalling

Wouldn’t the fact that the OPs parents remained living in the property for the rest of their lives also have created a potential IHT liability with no RNRB to mitigate it?

It does sound like this idea and implementation was probably created by the sort of creeps who scare people into doing this through fear of care costs.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81883286#Comment_81883286

Could well be, especially if the house and parents' other assets were no where near being in IHT terrority at any time in the past.

Cairnapple could be spot on. McClure churned out these trusts on a truly industrial scale, although they usually embedded themselves as trustees which (thankfully) is not the case here.

Coco1964

https://forums.moneysavingexpert.com/discussion/comment/81883126#Comment_81883126

Thank you for your detailed and informative response.

As has been mentioned in some of the other response, this was indeed a McClure's Family Protection Trust, so although they thought that they were getting 'professional assistance', this has turned out to be a complete waste of time. The Trust was updated in 2022 to remove the McClure directors that were down as Trustees, and it was properly registered with the TRS.

Alas, it is because of the potential CGT issue that the problem arises, as the people that we used in 2022 (a reputable local firm that we know well and trust (pardon the pun), can't help now, because the CGT aspects aren't their area of expertise.

There is no IHT issue as the estate is well below the threshold (the house is on the market for 115k), so no real historical issues that potentially were missed I don;t think.

I shall look at the STEP directory to ascertain if there is anyone suitable in our area. It may be, because of the low value of the house, that I'm worrying about nothing! Hopefully this will turn out to be the case.

Again, many thanks for your response.

Coco1964

https://forums.moneysavingexpert.com/discussion/comment/81883177#Comment_81883177

It is indeed a McClure Family Protection Trust. We have moved on a bit since then as we have had the McClure directors legally removed from the Trust.

I hadn't thought about the victims groups etc, so will have a look at that.

Thank you.

Coco1964

https://forums.moneysavingexpert.com/discussion/comment/81883286#Comment_81883286

No IHT issue, and yes, your 'care costs' statement was indeed the reason my parents took this Trust out.

It is a lesson well learned, but alas, still needs to be sorted by those left behind. I'm sure we'll get it sorted though.

Thank you.

poseidon1

Helpful to note this was one of the McClure trusts which has been partially untangled.

The modest current value of the home indicates the trust has no IHT compliance issues at all so no interaction with the IHT arm of HMRC is necessary.

At this point you and your sister are selling as trustees of an ongoing discretionary trust, rather then a simpler trust that ordinarily terminates on the death of the surviving spouse.

In the situation you are in you maybe better advised to find a STEP qualified accountancy firm with competency in trust tax compliance matters to assist in calculating the gain.

on the facts you provided the starting point is the formal valuation of the property when originally gifted to the trust in 2009. Do you have this?

The next stage is whether under the express terms of the trust had your parents been granted formal rights of occupation until their respective deaths? If the answer to this is yes then the CGT computation is in two parts.

Firstly for the period from trust creation to date of your mother's demise, the personal private residence exemption will be time apportioned to exempt that portion of the property gain arising when you eventually sell the property. The total gain will be by reference to the period 2009 to the date in 2026 you eventual complete the disposal.

Secondly, the remaining time apportioned gain between date of mothers death to eventual 2026 sale is likely to be very small and may even potentially covered by the trustees' £1500 exemption depending on the 2009 valuation.

The trust will have two CGT compliance points, it will need to submit an online CGT return within 60 days of the sale. This will be followed by a formal trust tax return form SA900 containing the fine detail of the CGT computation for HMRC to check and agree the assumptions made. In your case HMRC will be focusing on your basis for the PPR exemption claim ( ie the express power in the trust deed allowing occupation).

This kind of trust tax compliance, points to the services of an appropriately qualified tax Accountancy firm rather than solicitor, hence my reccomendation to seek help from that quarter.

I suspect there will be far fewer accountants in Scotland with trust compliance expertise compared to England, but you could start with making an enquiry to STEP's Scottish chapter - link below

https://www.step.org/branches/step-scotland

Finally, important to note that after selling the property you still have an ongoing trust, and need a formal deed to terminate it and distribute the capital cash to you and your sibling.

Ideally that deed should be executed immediately after the property sale, so that the, trust tax return not only reports the gain ( if any) but also the simultaneous trust termination. Unless the accountancy firm feels competent enough to draft such a deed in readiness, you may need a solicitor for that small task.

Hopefully this post gives you a roadmap, to progress matters further.

Coco1964

https://forums.moneysavingexpert.com/discussion/comment/81884549#Comment_81884549

Once again, thank you for your response.

You have given me a very much appreciated way forward to hopefully get this resolved in a timely manner.

I will update here when I've completed the journey so that others who may be in the same position at some point may benefit.