Sale of property in IPD trust

jsh99

Hi all,

Mothers property left half to brother and half to me. However my half in an IPD trust until he passes.

He is in care home and now looking unlikely to go home. His money is running out and the property will have to be sold. I am aware my half has to be invested until he passes with him getting the interest but not the capital. I will obviously take proper advise when the time comes but what are my options here? The solicitor at the time mentioned investing in property - but I am not sure we want to be landlords in the current climate. How can we best invest so that my share does not stagnate? Is that even allowed under the terms of an IPD trust?

My next question is around CGT because there is a possibility that I could get planning for two properties on the plot - it is very large and the current property is a sprawling bungalow with detached double garage and huge garden. If I got planning and the plot sold for more than was in probate value who pays the CGT? Does it come off the whole value at outset and then my brother gets his half to pay for care and then my half gets invested? Or does his half get taken and mine when I finally get the money from the trust (which may have grown in value)? Also he is 20% ta payer whereas I am 40% so not sure how that works!

many thanks.

poseidon1

Even without your intention of turning the property into a development plot you have a complex CGT calculation best undertaken by a Tax accountant.

The starting point is indeed probate value at mother's date of death. However on eventual sale there would be two separate CGT returns and calculations.

50% of the sale proceeds are attributed to your brother. The gain in excess of probate value would be taxed at 18% intially and if high enough a proportion would be further taxed at the higher rate of 24%. Your brother's £3000 CGT exemption would be available. PPR would normally be available to shelter your brother's gain but from your previous posts, I understand your brother was in a care home as at the date of your mother's death?

As for the trust, there is only a £1500 CGT exemption available with the resulting net gain taxable at the 24% rate.

In addition to the online CGT reporting within 60 days of sale, both your brother and the trust would be required to lodge subsequent self assessment tax returns ( SA100 and SA900 respectively), for the tax year of disposal.

However, obtaining planning permission for a development plot, could complicate the tax treatment on disposal by turning a straight forward residential sale ( liable to CGT) into a trading asset disposal liable to income tax - see article below

https://www.scruttonbland.co.uk/news-views/what-are-the-tax-implications-of-selling-land-with-planning-permission/#:~:text=When%20you%20sell%20land%2C%20including,other%20income%20in%20the%20year.

Interestingly, although this could mean a higher income tax liability on your brother with him broaching the 40% or even 45% thresholds ( if profit over probate value is of that magnitude), the trust by contrast could only be taxed at basic rate of income tax in this scenario, regardless of the quantum of profit made.

Overall however, I would suggest an income tax outcome would be less beneficial than a CGT result, if only because of the possibility of your brother paying 40% or 45% on part of his proceeds.

As advised in previous posts you undoubtedly require expert advice and assistance here both pre and post sale , although in this case from a qualified tax accountant rather than solicitor.

jsh99

thanks

It was my brothers main residence since 1961 and he has always said he wants to go home and that is what we have been working towards - how long does he have to have been in the care home for PPR to no longer be the case? Mother did die whilst he was in the care home but another complication may be that he was actually already owner of 50% as he was tenants in common with mother so she actually put in trust only her half for his benefit then it is to come to me.

As I have LPA I am bound to act in his best interests so getting the most money for the sale is I guess what I should do but part of me thinks this is all way too complicated and is going to cost a fortune to pursue planning. Will Social Services deam I have not done my best to get money for his care (deprivation of assets) if they later find out the new owners get planning for two properties and sell at a big profit - wll they say I should have done the same??

poseidon1

PPR will apply on behalf of your brother from the point at which he became a joint owner of the property with your mother.

Assuming she gifted rather than he purchased his share from her, his base cost for PPR will be market value at date of the original gift, and PPR on his behalf continues up to 36 months after his first admission into care. On a time apportioned basis, your brother should hopefully have little or no gain exposed to tax on a straightforward sale.

Your LPA ( or trusteeship) does not require you to become a property developer, or impose on you a higher duty of care to obtain the best financial result on behalf of your brother, than would be expected of any other lay person with your level of fiscal knowledge and expertise. Indeed bear in mind, the development approach could impose a considerably higher (trading ) income tax outcome on your brother compared to the far more benign CGT regime he is currently exposed to.

Also bear in mind if you have done nothing ( as yet) towards obtaining formal planning permission for a small development, the process could easily take you 6 months + before you are in position to sell on unless you just settle for mere outline permission.

Prior to going down that road you should get a working estimate of the likely increase in value (with say outline permission) to ensure the overall return ( after tax) justifies the costs and time delays this will occassion.