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Answered in 9 hours by:
9/27/2009
Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 16,712
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
VerifiedIf you can give me the following information, I'll try to help:
1 Has your father died recently? Is any of his estate held in trust or is it just a matter of liquidating assets and distributing the money to the beneficiaries of the will? What does your father's estate comprise?
2 Is your mother still alive? What type of trust are your mother's assets held in? If your mother is no longer alive, was the trust set up when your mother died? Was your father the life tenant of the trust set up when your mother died?
Trust tax is a complex area. Please give me as much information about the trust you refer to as holding your mother's assets as you possibly can, when it was set up, why it was set up, what the terms were, what form the assets take, who the beneficiaries are/were and what is supposed to happen to the assets when the life tenant if there was one dies or died.
Edited by Tony on 9/27/2009 at 1:55 PM EST
1 Has your father died recently? Is any of his estate held in trust or is it just a matter of liquidating assets and distributing the money to the beneficiaries of the will? What does your father's estate comprise?
2 Is your mother still alive? What type of trust are your mother's assets held in? If your mother is no longer alive, was the trust set up when your mother died? Was your father the life tenant of the trust set up when your mother died?
Trust tax is a complex area. Please give me as much information about the trust you refer to as holding your mother's assets as you possibly can, when it was set up, why it was set up, what the terms were, what form the assets take, who the beneficiaries are/were and what is supposed to happen to the assets when the life tenant if there was one dies or died.
Edited by Tony on 9/27/2009 at 1:55 PM EST
Thanks for the additional information.
First, a bit of background. When somebody dies, everything they owned is valued as at the date of death for Inheritance Tax purposes. It's called the probate value. So, for example, if a beneficiary inherits a property, their cost for Capital Gains Tax purposes will be the probate value, not the original cost to the deceased. If the property is sold shortly after being inherited, there will probably be little gain or loss as the value of the property won't have changed much since the date of death of the deceased. The same applies to shares although there is more likely to be a difference between the value at the date of sale and the probate date than with a property.
Turning to your case, from what you've told me the trust would seem to have been an interest in possession trust whereby your father had a lifetime right to the income generated by the trust assets. If that is the case, on his death the trust assets become part of his estate for Inheritance Tax purposes at their respective values when he died along with his own assets.
If the assets of the estate (your father's and the trust's) are liquidated with the intention of distributing the cash to the beneficiaries then any Capital Gains Tax charge will fall on the estate not the beneficiaries. The estate would only pay CGT on the uplift in value from the probate values of the assets sold. Inheritance Tax may also have to be paid if the estate was worth in excess of £312,000. Since October 2007, there has been a rule in place whereby if the IHT exemption of the spouse who dies first is not fully used the unused percentage can be applied to the nil rate band applicable at the second death (£312,000). However, as your mother died before March 1975, this may not be available. This type of tax was called Estate Duty in 1966. You ought to seek advice from a solicitor who specialises in estate and trust tax work to clarify this point. However, if the total estate is worth less than £312,000 there is no point in looking at this. If the assets are distributed to the beneficiaries, then, as I said in the second paragraph, the cost for CGT purposes is the probate value and no CGT would arise until a sale occurred at a higher price.
Finally, you ought to take advice from a solicitor with trust and tax knowledge as I can only give you general pointers from here since I don't have access to all the paperwork, particularly in relation to the trust. There may have been actions in 1966 which have a bearing on the winding up of the trust and the tax position.
Edited by Tony on 9/28/2009 at 6:22 PM EST
First, a bit of background. When somebody dies, everything they owned is valued as at the date of death for Inheritance Tax purposes. It's called the probate value. So, for example, if a beneficiary inherits a property, their cost for Capital Gains Tax purposes will be the probate value, not the original cost to the deceased. If the property is sold shortly after being inherited, there will probably be little gain or loss as the value of the property won't have changed much since the date of death of the deceased. The same applies to shares although there is more likely to be a difference between the value at the date of sale and the probate date than with a property.
Turning to your case, from what you've told me the trust would seem to have been an interest in possession trust whereby your father had a lifetime right to the income generated by the trust assets. If that is the case, on his death the trust assets become part of his estate for Inheritance Tax purposes at their respective values when he died along with his own assets.
If the assets of the estate (your father's and the trust's) are liquidated with the intention of distributing the cash to the beneficiaries then any Capital Gains Tax charge will fall on the estate not the beneficiaries. The estate would only pay CGT on the uplift in value from the probate values of the assets sold. Inheritance Tax may also have to be paid if the estate was worth in excess of £312,000. Since October 2007, there has been a rule in place whereby if the IHT exemption of the spouse who dies first is not fully used the unused percentage can be applied to the nil rate band applicable at the second death (£312,000). However, as your mother died before March 1975, this may not be available. This type of tax was called Estate Duty in 1966. You ought to seek advice from a solicitor who specialises in estate and trust tax work to clarify this point. However, if the total estate is worth less than £312,000 there is no point in looking at this. If the assets are distributed to the beneficiaries, then, as I said in the second paragraph, the cost for CGT purposes is the probate value and no CGT would arise until a sale occurred at a higher price.
Finally, you ought to take advice from a solicitor with trust and tax knowledge as I can only give you general pointers from here since I don't have access to all the paperwork, particularly in relation to the trust. There may have been actions in 1966 which have a bearing on the winding up of the trust and the tax position.
Edited by Tony on 9/28/2009 at 6:22 PM EST
Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 16,712
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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