I set up a lifetime trust and put a property in it. What happens if I want to sell the property?
Lifetime tax planning is an excellent way to mitigate against inheritance tax. Many people set up trusts during their lifetime, and they are not just for the most affluent. When a Trust is set up, it is a lifetime chargeable transfer for Inheritance tax purposes, and there may be immediate Inheritance tax to pay. People think of Inheritance tax as a death tax, but it is not just paid on death. It is essential to get legal advice when setting up a Trust, as there are ways to ensure that no tax is paid upon setting up. For example, there may be an IHT charge on a Trust withdrawal and on the 10th anniversary. Again, legal advice should be sought.
What happens if I put a property in Trust and then want to sell it?
Capital Gains Tax is payable again. The gain is calculated by deducting the property's market value going into the trust from the proceeds of the sale. You can deduct any monies you used to enhance the property and any charges relating to the sale. The Trust would also have its’ annual exemption of £6150, which can be deducted from the gain. There may be other reliefs available depending on the circumstances, for example, PPR. Again, legal advice is crucial as without applying for the relevant reliefs, you could be producing a tax return which adds thousands of pounds to your tax bill. We recently advised a client how they could reduce their tax from around £35,000 to £12,000 by applying for the correct relief.
If the Trust comes to an end and I now personally own the property, when I sell it, do I pay CGT?
The answer is likely to be yes. You are likely to pay CGT on the difference between the sale proceeds and the market value when the trust ends, less any costs incurred. You will need legal advice as it depends on the individual circumstances as to how to advise.
MDW Solicitors Ltd is headed by Debra Williamson, who has 29 years of qualification as a Lawyer. Debra has taken all her STEP exams and is STEP affiliated. MDW Solicitors is a specialist firm dealing in Trusts, tax, probate, wills, LPAs, motoring offences and private Crime. We can attend the police station to represent, but we do not do any legal aid work.