Tax implications from removing my main residence from the Lifetime Property Trust

mjianoramn

I have removed my main residence home from the Trust and according to Land Registry, it will be completed by the 28th of April. Will there be a CGT and others I have to pay from removing it from the Trust and will be under my sole name? I was one of the Trustees and the other is SWW Trust Corporation. Beneficiaries are my sons who are still living with me. It was in the trust since 2012.

SDLT_Geek

I would expect the capital gains tax disposal to have happened on the date of the document removing the property from the trust, not the later date of the completion of the registration of the transfer.

This is a specialist area, and though it will be interesting to see what people on here say, you are likely to need professional advice tailored to your position.

Keep_pedalling

How was the trust originally created? If it was created by a will which gave you a lifetime interest then there has been no change in beneficial ownership so CGT should not be an issue.

GDB2222

I agree with @SDLT_Geek you need specialist tax advice ASAP.

poseidon1

https://forums.moneysavingexpert.com/discussion/6663112/tax-implications-from-removing-my-main-residence-from-the-lifetime-property-trust

Presumably as co trustee SWW are a party to the dissolution of the trust and transfer of title to your sole name. Are we to take it they have provided zero tax advice on exit of the property from the trust?

Did they provide any advice of the tax implications when trust was 1st established?

Without seeing the precise terms of the lifetime trust to determine if it is discretionary and whether you were granted formal beneficial rights of rent free occupation of the property, no idea if CGT is now an issue.

mjianoramn

Hi all,

Thank you for your response. @Keep_pedalling Just checked the document and it is a Will Trust. It was created at the same time as my Will. It was created so it will go to my sons when I die. @poseidon1 SWW is a co Trustee.Title will be transferred to my sole name. Zero tax advice on exit from them, hence, I was not aware that there is tax implications from removing it. No tax advice either when it was 1st established on 16/01/2012. The document title says it is a Home Protection Trust and it says

MC ('the Settlor')
and
MC and SWW ('the Trustees')
PREAMBLE
(A) This Trust has been created to make lifetime provision for the Settlor. For this purpose
the Settlor has transferred to the Trustees the property described in the First Schedule
hereto. It is envisaged that further property may be transferred to the Trustees to hold
on the trusts declared herein
(B) For the duration of the life of the Settlor the interests of the Settlor under this
Settlement shall be paramount and the administration of this Settlement may exclude
consultation with and consideration of the interests of any other beneficiary other than
the Settlor
(C) This Settlement is irrevocable

it also says

3 Occupation of the Trust Property
3.1 The Trustees will permit the Settlor to reside in the Property rent-free subject to the
Settlor keeping it in reasonable repair and condition, paying the outgoings, keeping it
insured to its full reinstatement value, observing and performing any covenants and
conditions to which it is subject, and not granting any lease, licence or tenancy or allowing
anyone else to occupy the Property in circumstances Which could give that person
protection from eviction.
3.2 During the lifetime of the Settlor, the Trustees will not enforce any sale of the
Property nor seek to obtain any rent or income from the Property without the written
consent of the Settlor
3.3 The Trustees, will, if asked to do so by the Settlor, sell the Property and apply the
net proceeds of sale in or towards the purchase of such other property as the Settlor
directs, which will be held on the same trusts as the Property and will be confirmed by an
annex to this trust document signed by the Trustees and the Settlor
3.4 If the Property is sold during the lifetime of the Settlor, the Trustees will invest the
net proceeds of sale, or such part as has not been applied in or towards the purchase of
any other property for the Settlor, in whatever investments they think fit and will pay the
income from those investments to the Settlor during the Settlor's lifetime

It looks like it is no longer a CGT issue but an IHT Issue?

mjianoramn

The Trust used their solicitors to remove it from the Trust (though I did ask if I can use mine but they said no). Legal fee I paid their solicitors was £1369.20. As the completion date is the 28th of this month i.e. when the Land Registry updates the title deed, I am now thinking if I can cancel the transfer so I dont have to pay IHT. I do not have funds to pay the IHT unless I sell the property but this is my main home with my 2 sons.

poseidon1

From what you say, the 2012 trust seems to have been a wholly misconceived life interest trust with you as the primary beneficiary for life, with rent free occupation of your own residence.

On the surface it appears to have been a completely pointless excercise unless the intention was to protect the property value from local authority assessment if you were ever to go into a care home in later life. Certainly, such a trust does nothing from the point of view IHT avoidance.

Despite the trust being expressed as 'irrevocable ' ( ie irreversible) , the good news is breaking the trust does not trigger a CGT liabilty since at all times the property benefited from the main residence exemption available via yourself as the occupying primary beneficiary.

However, need to ask for inheritance tax purposes what was the value of the property when placed into trust in 2012, what was the property value on the trust's 10th anniversary in 2022 and what is the current value now?

Reason for this question is such trusts needed to be reported to HMRC's IHT unit if the property value exceeded 80% of the prevailing nil rate band on entry to the trust ( this would have been £260k in 2012 ). There would have been a need to report again in 2022 for the same reason. If the property is currently valued at above £325k there may in fact be an IHT exit liability on the excess , on winding up of the trust.

Therefore saying all this, has IHT already been triggered ( inadvertently) in the past even if you do decide not to proceed with the trust termination which seems to have already progressed significantly.

One last point, was the trust ever reported to HMRC's Trust Registration service? This was an anti money laundering requirement introduced in 2017, and mandatory for trusts from 2022 onwards see link below:

https://www.gov.uk/guidance/register-a-trust-as-a-trustee

poseidon1

Given a current value of £525k, it is possible the property was worth in excess of £325k in 2022 (the 10 year anniversary) so regrettably the trust may have already triggered an IHT liabilty at 6% of the value exceeding £325k.

If the trust is now terminated as intended, you trigger a further IHT exit charge at the rate relating to the tax that should have been paid on the 2022 anniversary.

Even if you 'cancel' the termination, the trust will still face another 10 year anniversary IHT charge in 2032 so this is a rolling problem.

In the circumstances I reccomend you consult your solicitor immediately.

By failing to provide any trust tax advice at inception and periodically, it would appear SWW may have been grossly negligent and perhaps have sought to obscure this by not allowing your solicitor to be involved in the matter.

If your solicitor does not have competency in Trust Inheritance tax compliance matters you may need to seek out a STEP qualified tax accountant who does. STEP is the Society of Trust and Estate Practitioners. Your solicitor should be aware of that professional body.

In passing, if SWW also drafted your will it would be a good idea for a solicitor to review it also, given the mess they made in setting up the trust and failing to monitor its ongoing tax exposure and compliance obligations.

mjianoramn

Thank you @poseidon1 . This is not good news. I will ask my solicitor to review. This is the first time I heard of 10 year anniversary and IHT being triggered if main residence is removed from the Will Trust. I did not get an email nor any correspondence from SWW regarding tax that should have been paid in 2022.

This tax rule does not sound fair to me. What should i pay IHT on my main residence that my sons and I have been living since I bought it in 1996. I thought IHT only arises when I die.

Thank you again for your help. Much appreciated.

SDLT_Geek

There might be some points of interest to you in the report by Tax Policy Associates on the type of trusts put in place by MP Estate Planning. https://taxpolicy.org.uk/2026/03/13/mp-estate-planning-trust-misselling-investigation/

The report is technical and detailed, but does say a bit about the ten yearly IHT charge. If within the report you search for the word "anniversary" that will take you to some parts of the report which might help you.