CG33550 - Disposals by trustees: reliefs
The purpose of this section is to draw attention to certain reliefs which are available to trustees.
Business asset disposal relief
Gifts hold-over relief
FA82/S82
A claim to gifts hold-over relief can be made by trustees provided that the conditions of Section 260, or Paragraphs 2 or 3 Schedule 7 TCGA 1992 are present. See CG66880+. Such claims extend to any deemed disposals by trustees. The transferee (except a trustee of settled property) must join in the claim, see CG66889. The claim form in HS295, or a copy, must be used. The Help Sheet can be downloaded from the gov.uk. The previous conditions for hold-over relief which applied between 6 April 1982 and 13 March 1989 were far wider, see CG66881+.
Under TCGA92/S74, on the death of a person with a life interest there is a claw-back of the held-over gain, see CG36510, but provided that this is a chargeable transfer for Inheritance Tax purposes, see Appendix 4, the clawed-back gain can itself be held over. One common situation where this would not be a chargeable transfer for Inheritance tax is where on the death of the life tenant his or her spouse or civil partner is either the next life tenant or becomes absolutely entitled.
This paragraph describes the provisions in TCGA92/S79A. It applies only where a chargeable gain accrues to trustees on or after 21 March 2000, and all the following conditions are met:
- The expenditure allowable in computing the gain has been reduced directly or indirectly as a consequence of a previous transfer to the trustees which attracted gifts hold-over relief,
and
- The person who transferred the asset to the trustees on that occasion, or any person connected with them, has acquired or entered into arrangements to acquire an interest in the settlement, and
and
- In connection with the acquisition of that interest any person has received or become entitled to receive any consideration.
If all the conditions are met, then the trustees cannot set any losses, whenever incurred, against the gain on the disposal of the asset.
The purpose of this legislation, which was introduced in Finance Act 2000, was to prevent arrangements whereby a taxpayer who had the intention of selling a valuable business asset (including unlisted shares) would carry out transactions on the following lines.
- Find a trust which had genuine substantial losses, surplus to the trustees’ own requirements. These losses could be realised or unrealised. Possibly a negligible value claim under TCGA92/S24 (2), see CG13120+, could be made.
- Enter into transactions with the trustees and beneficiaries whereby all the interests in the trust belonged to the taxpayer and his immediate family. In order to achieve this a substantial payment would be made to the beneficiaries as the price for access to the benefit of the actual or potential losses of the trustees.
- Transfer the valuable asset into the trust with a claim being made to hold-over relief under Section 165.
- Arrange for the trustees to make all necessary disposals and negligible value claims to crystallise any unrealised losses.
- Arrange for the disposal of the valuable asset, with the gain being covered by the trust losses.
The legislation prevents any trust losses from being set against the gain on this asset, but not any other gains of the trust.
Private residence relief
The disposal by trustees of a dwelling-house which has been the only or main residence of a beneficiary or beneficiaries entitled to occupy it under a settlement may well give rise to a chargeable gain or allowable loss; the conditions for exemption under TCGA92/S225 are described in CG65400+. If a life tenant or other beneficiary, who has satisfied those conditions from the time of acquisition of the house by the trustees, or 31 March 1982 if later, subsequently becomes the absolute owner of the residence, no chargeable gain or allowable loss will arise on that event under TCGA92/S71 (1).
Business Asset Disposal Relief
In certain circumstances trustees may claim business asset disposal relief under TCGA92/S169H to S, see CG63950+
EIS relief
CG63055 explains the way in which trustees may be entitled to the deferral relief. But EIS Income Tax relief and Capital Gains Tax disposal relief, see CG62804+, are not available to trustees.