14. CGT and Trusts

Question 1

Trustees liable to CGT

Answer 1

20/28%

HALF AEA

Question 2

what is settled property

Answer 2

if held in a trust and not bare trust (s.68)

not sp:

• property administered in deceased’s estate
• property vested in bankruptcy

Question 3

bare trust

Answer 3

s. 60 - where B is absolutely entitled
- ignore trust rules
- apply normal CGT rules (everything T does, pretend B did it)
- if there is a remainder man, no ae
- CGT only triggered if B/T disposes of assets on b’s behalf (actual/deemed by B)

Question 4

Tomlinson v Glyn’s Executor

Answer 4

bare trust exists if person would be absolutely entitled BUT FOR being infants/disabled

BUT here NOT AE
- interest contingent on reaching 21

Question 5

TRANSFER INTO SETTLEMENT

Answer 5

S.70 - deemed disposal
so if there is other components = CGT charge

S and T = deemed connected (s.286) so deemed DC at MV (s.18, s.17)

to avoid charge: use sterling, or holdover relief

Question 6

Holdover Relief

Answer 6

s. 260 - transfer is immediately chargeable in iHT

s. 165 - asset transferred is business asset

Question 7

why is the rate for T higher?

Answer 7

partly to stop avoidance

- people would transfer into trust then claim HR so gain is on T (beneficial when T’s tax was lower than S)

Question 8

Berry v Warnett

Answer 8

settlement created by sale of a limited interest in property

ENTIRE DISPOSAL OF PROPERTY FOR CGT

Question 9

Disposals during the trust period

Answer 9

T is charged on chargeable gains (s.1(1)) - s.65

• but rate 28%
• losses are different
• T is not connected to B (only S)
• RELIEFS, s.225 PPRR if DH is owned by T and is PPRR of someone entitled to occupy or T allowed to occupy and would be entitled to income from house/proceeds to sale

Question 10

Samson v Peay

Answer 10

if discretionary trust and T allows B to occupy DH, B is entitled to occupy the house

Question 11

LOSSES

Answer 11

T can use losses like individuals

trust gains can be carried over to B who becomes absolutely entitled as against T BUT S.79A restricts this in certain circumstances

Question 12

deemed disposal during trust period

Answer 12

s. 71 - where person becomes absolutely entitled

s. 72 - termination of life interest in possession on death but settlement continues

Question 13

s.71 - where person becomes absolutely entitled

Answer 13

deemed disposal by T and reacquisition by T at MV as s.60 trustees

• not deemed disposal to person absolutely entitled but effect is the same
• normal CGT consequences

Question 14

s.72 - termination of life interest in possession on death but settlement continues

Answer 14

OLD:
- deemed disposal by T and reacquisition by T, but tax free uplift (no charge)

BUT if IIP arises after MARCH 2006, no tax free uplift on death of B unless exception applies

Question 15

disposal of beneficial interest

Answer 15

s.76 - any gain arising on disposal of an interest under a settlement is exempt from CGT charge

Question 16

Roome v Edwards

Answer 16

one trust or two? depends whether 2nd “trust” was exhaustive of B’s interest

power to appoint = single trust
power to appropriate property to B = separate

here = one trust

Question 17

Bond v Pickles

Answer 17

power of T does not include authorising T to remove property from trusts altogether

Question 18

Kidson v MacDonald

Answer 18

TC = jointly AE as against T

Question 19

booth v ellard

Answer 19

person can be AE even if interest dependent by virtue of some contract or trust