CGT Declaration of Trust

In October 2000 my mother transferred her home to my brother pursuant to an agreement between her, my brother and myself. Before the property was transferred in various discussions we agreed that the property would be put into my brother’s name but held on trust on the following terms: a) That my mother would live there for the rest of her life &pay the outgoings. b) Myself and my brother would pay the mortgage on the property because she could not afford to do so and c) That after her death the property would belong to my brother and myself in equal shares. On the assumption that the terms of the trust can be evidenced by a Declaration of Trust please could you provide guidance on how any liability for capital gains tax would be treated. I am advised by my solicitor that the beneficial interest in the property remains with my mother until she dies, even though the legal title is in my brothers name. As my brother is effectively holding the property on trust for my mother’s benefit during her lifetime, and after her death, on trust for the two of us, I would like your view on how the property would be treated for Capital Gains Tax purposes when we sell it. I do not believe any inheritance tax will be payable because the property will be below the threshold. If you would like any further information please let me know otherwise I thank you in anticipation of your response.

Hi Ray Bater,

As it is not your main residence, capital gains will be due if/when the property is sold, further guidance is at:
 Capital Gains Tax: what you pay it on, rates and allowances
and is based on current legislation.
We cannot provide any guidance on future events.

Thank you.

Thank you for your reply to my query. Both my brother and I appreciate that we will not be entitled to principal residence relief because we do not live at the property. However, our mother does so and if she wished to sell and move into a smaller property in the future who would be responsible for the CGT? In terms of the trust she is the life tenant and occupant and is entitled to principal residence relief. Would our mother be entitled to principal residence relief. On the basis that our mother is the beneficial owner are we correct in assuming that there will be no tax payable by her because of the private residence relief and no tax payable by the legal owner of the property because there is no beneficial entitlement until she dies? If our mother continues to live in the property until she dies, and the property is immediately sold for its probate value am I correct in assuming my brother and I will then become beneficially entitled and will acquire the beneficial interest at probate value and only pay Capital Gains Tax on any subsequent chargeable gain. I look forward to receiving your reply.

Hi,

Please refer to additional guidance at:

TSEM6203 - Legal background to trusts & estates: life tenant - an outline

Thank you.