Unit Trust for grandchildren and CGT

riccyboy wrote: »

The investment is a SJP jointly owned Unit Trust (according to the last Quartelrly Unit Trust Valuation I was sent). It has a plan/account number UT1234567 ABC (ABC being my daughter!!!8217;s initials). Does that help clarify?

To avoid any confusion, a 'unit trust' is simply a type of collective investment scheme where whoever wants to invest in the scheme aquires 'units' (as opposed to some other types of collective investment scheme which have you aquire 'shares'). The word 'trust' is just a reference to the legal structure of the type of investment fund in which thousands of people will participate - it doesn't imply this is a trust arrangement for the benefit of the child.

The description of "a SJP jointly owned UT" as distinct from a "SJP UT held under trust for the benefit of Child A Smith" seems to imply that this isn't a trust arrangement where the parents and grandparents are bare trustees and the CGT is assessed on the child as bare beneficiary of the pile of units. Instead if is an arrangement where a bunch of named owners jointly own a pile of units. The nonspecific language from SJP doesn't say whether those owners agreed to be considered joint tenants or tenants in common in relation to the property they own between them.

xylophone wrote: »

Or it would be possible for the money contributed by just one individual to a joint account to be a "gift" to the other parties (on the basis that any one of them could withdraw money from the account)?

I say this on the basis that it appears from the first post that just one of the parties can give instructions to sell units and can pass the cash to another two of the parties?

The fact that the terms and conditions of operating the account (governing the relationship between the investment provider or service provider and the joint owners of the account) might allow just one person to give instructions to sell units in the account and have the fund manager write the cheques to whichever person they designate, does not automatically make the money paid in by one person belong to the others at the point it's paid in or the point an investment is made.

The account terms are a starting position between the financial service business on one hand and ther owners on the other, but the rights between the individual parties depend on what they have agreed with each other. When one person takes money out that they didn't put in (and the person who had funded the account doesn't say it's merely a loan to the person withdrawing it), that withdrawal would be generally considered to be a gift from whoever's money it was, to the person walking away with the money - but of course you have to assess each case on its individual circumstances.

For spouses or civil partners owning a joint account together, HMRC will consider that any of the income in the account being earned over time is beneficially owned 50:50 between the two of them. Even if the account is owned as unequal shares, HMRC will still treat any income as being taxable on the couple on the equal basis unless you make a declaration that it is not equal shares and declare that you want to be taxed in line with your beneficial interests.

Between the parties that aren't spouses, HMRC will normally regard each account holder of a financial account as beneficially entitled to the proportion of the account attributable to their contributions; so for the non-spousal parties (i.e. the parents vs the grandparents) they never put any money in to the SJP platform; so their money wasn't used to acquire the unit trust; it may follow that they wouldn't seem to have a beneficial ownership of it, and it would follow that the income from the unit trust isn't theirs, the gains on the unit trust isn't theirs.

An exception I suppose would be if the assets in the account (or the units in the unit trust if held directly rather than on a platform) were agreed to be owned as 'joint tenants' regardless of who funded them, rather than 'tenants in common in unequal shares' a bit like the choice when buying a house; and then the gifting from one person to the others would have occured at the time of acquisition. If nothing was documented at the time, it would perhaps be difficult to convince HMRC that the investment was actually owned as a four way split even if all four people have signing rights.

- -
I probably mis-spoke earlier in my initial response when I said that there is an automatic assumption that a person and their spouse are joint owners 50/50 of the property they acquired. Long day and not enough coffee . From HMRC perspective the *income* from the asset owned between spouses is automatically 50/50 jointly owned regardless of how the asset's beneficially owned, but that doesn't mean the asset itself is automatically beneficially owned 50/50 from HMRC's view. And it is how it is actually beneficially owned which is what's going to drive the CGT calc.


So, if the SJP account was funded from the grandparent-couple's joint account it doesn't seem much of a stretch to say the units belong jointly to them; but if the SJP account which aquired the units was funded entirely by one grandparent, then one might assume the units belong to that one grandparent, and any gain belongs to that one grandparent - even if any income generated by the assets along the way is considered fair game for HMRC to tax each member of the couple equally. Income tax is a separate tax regime to CGT with different rules and case law.

This talk of who owns the assets for CGT purposes is presuming by the way, that all the 4 people's names are stamped on the SJP account but they are not joint tenants who were gifted something when the one grandparent put in each and every element of the £25k over the period of years - instead they are tenants in common with beneficial interest shared unequally and don't actually have such interest until either the grandparent gives them a specific gift or they put their own money in.