Principal Private Residence (PPR) & A Trust

A client has transferred a residential property into a discretionary trust. The value of the property is over the IHT nil rate band. Are there are CGT implications? If the trustees sell the property in the future can they claim principle private residence relief?

A transfer into a discretionary trust is a chargeable lifetime transfer so this would be immediately chargeable to IHT on the amount over the IHT nil rate band (£325,000) and would be taxed at 20%. If the settlor were to die within 7 years of the transfer into the discretionary trust an additional 20% could be payable as the IHT rate on death is 40%.

As far as capital gains tax is concerned a claim under TCGA 1992 s260 could be made to hold over the gain on the way into the trust because this is a chargeable lifetime transfer within the meaning of the Inheritance Tax Act 1984 and is not a potentially exempt transfer.

The trustees could be eligible to claim principle private residence relief under section 225 of TCGA 1992 if they meet the normal qualifying conditions.  The qualifying conditions under TCGA 1992 s225 i.e. a beneficiary is permitted to live in the property under the terms of the trust deed.  Principle private residence relief cannot be claimed when an s260 claim as been made as per s226A TCGA 1992.’    Ie. the trustees cannot claim relief on a disposal (the later disposal) if the acquisition cost of the property has been reduced by a gift hold-over relief claim under s260 made by any person on an earlier disposal.  Special transitional rules may allow some private residence relief to be claimed by the trustees if gift hold-relief under s260 is given in respect of a transfer to the trustees which was made before 10 December 2003.


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