Am I liable for CGT?

[joe last]

Hello everyone!
For the past few years I have been in legal dispute with my daughter, where a property was in her name sole name legally, we did not make any declaration of trust where i was named benerfiary. She sold the property without telling me a few years ago and kept all the sales proceeds. I went to court and this year I was awarded a court order saying the net proceeds of the sale should come back to me and it also declares that the property was given to her on trust from me. I found out when she sold the property she didn't pay CGT at the time. am I liable to pay the capital gains tax for this sale? if anyone has any knowledge or guidance on this would be grateful please!

 

[Gyumri]

I am surprised you won but you must have had some explicit emails setting out the position.

If the property wasn't the principle home of your daughter then CGT would be payable and I assume that would be your daughter's responsibility as the erstwhile trustee. I can't see HMRC wanting to run around to chase after beneficiaries for the tax.

She would normally be entitled to be indemnified by you for the tax but as she has sold the property in breach of trust then she may not be entitled to revert to you for reimbursement if she pays the CGT.

It could be a case of hard cheese for her, but I would check your legal position.

 

[David Griffiths]

I take a different view. If the property was held on bare trust for you, then you are liable for CGT, and whether or not it was your daughter's residence is irrelevant

 

[GLAbusiness]

From the OP I'm a bit confused (a common situation) about who had what in trust for who.

However, it seem to me that if the court has rules that OP is entitled to net profit, then this must mean after all taxes and costs have been paid.

 

[JEREMY HAWKE]

If your falling out with your daughter then you have bigger problems the CGT
I dont normally make comments like this but this is very sad indeed

 

[NortonBishop]

If the OP is the beneficiary of a capital gain on a property that wasn't their residence then CGT would logically apply on the gain.

 

[Gyumri]

I take a different view. If the property was held on bare trust for you, then you are liable for CGT, and whether or not it was your daughter's residence is irrelevant

HMRC takes a different view which is that the trustee pays the tax due:

Trusts and taxes

A trust is a way of managing assets (money, investments, land or buildings) for people - types of trust, how they are taxed, where to get help.

www.gov.uk

The OP was obviously not occupying the property as his principle home so his daughter as the erstwhile trustee should pay the CGT.

Well, that's my two cents.

 

[Newchodge]

Hello everyone!
For the past few years I have been in legal dispute with my daughter, where a property was in her name sole name legally, we did not make any declaration of trust where i was named benerfiary. She sold the property without telling me a few years ago and kept all the sales proceeds. I went to court and this year I was awarded a court order saying the net proceeds of the sale should come back to me and it also declares that the property was given to her on trust from me. I found out when she sold the property she didn't pay CGT at the time. am I liable to pay the capital gains tax for this sale? if anyone has any knowledge or guidance on this would be grateful please!

I hope and believe that you are liable for CGT.

 

[Newchodge]

HMRC takes a different view which is that the trustee pays the tax due:

Trusts and taxes

A trust is a way of managing assets (money, investments, land or buildings) for people - types of trust, how they are taxed, where to get help.

www.gov.uk

The OP was obviously not occupying the property as his principle home so his daughter as the erstwhile trustee should pay the CGT.

Well, that's my two cents.

Unless the daughter was occupying the property as their main residence?

 

[UK Contractor Accountant]

For a Bare Trust the beneficiary is taxed on all income & gains from the asset held by the Trustee as pointed out in Post #3.

 

[Gyumri]

For a Bare Trust the beneficiary is taxed on all income & gains from the asset held by the Trustee as pointed out in Post #3.

Not according to HMRC. See post 7.

 

[Ziggy2024]

Did you have legal representation? This should, surely have come up at some point during the proceedings.

I agree with the posters saying this is your responsibility but even if it was your daughter's is she really going to sort it out? Are you going to have to go through the court again?

If you have the money now then sort it with HMRC and seek redress later if you want to. There will no doubt be interest to pay, any penalties for late filing can be appealed.

 

[UK Contractor Accountant]

Not according to HMRC. See post 7.

Taxation of a Bare Trust​

The tax treatment reflects the fact that the trust is effectively ignored.

A Bare Trust is not a ‘settlement’ for IHT purposes and therefore a gift to a Bare Trust is a Potentially Exempt Transfer (PET) with the trust fund then falling inside the estate of the beneficiary.

Trustees are not required to complete a self- assessment tax return.

Capital gains are taxed on the beneficiary and accordingly the beneficiary’s CGT exemption may be used. This applies regardless of the beneficiary’s age and relationship to the donor.

Income is also taxable on the beneficiary

Bare trusts taxation

See how bare trusts are taxed, helping advisers understand income & capital gains treatment, beneficiary ownership rules & implications for planning strategies.

www.mandg.com

 

[Bobbo]

From the OP I'm a bit confused (a common situation) about who had what in trust for who.

However, it seem to me that if the court has rules that OP is entitled to net profit, then this must mean after all taxes and costs have been paid.

OP said "net proceeds", which absent anything else I would interpret as selling price less estate agent fees, conveyancing costs etc.

 

[Gyumri]

Taxation of a Bare Trust​

The tax treatment reflects the fact that the trust is effectively ignored.

A Bare Trust is not a ‘settlement’ for IHT purposes and therefore a gift to a Bare Trust is a Potentially Exempt Transfer (PET) with the trust fund then falling inside the estate of the beneficiary.

Trustees are not required to complete a self- assessment tax return.

Capital gains are taxed on the beneficiary and accordingly the beneficiary’s CGT exemption may be used. This applies regardless of the beneficiary’s age and relationship to the donor.

Income is also taxable on the beneficiary

Bare trusts taxation

See how bare trusts are taxed, helping advisers understand income & capital gains treatment, beneficiary ownership rules & implications for planning strategies.

www.mandg.com

The sister of the op was not holding the property as a bare trustee but had depositive power and did sell the property. She was also presumably managing the property and renting it out for the OP? If so, it is not a bare trust case. If it is a bare trust case then the OP would be liable although it doesn't seem that he has yet obtained a penny from the sale.

As stated I am surprised the OP won, because it could easily have been seen as a gift to his daughter. Father's don't usually say to their daughters "buy and hold a property for me."

 

[Gyumri]

Taxation of a Bare Trust​

The tax treatment reflects the fact that the trust is effectively ignored.

A Bare Trust is not a ‘settlement’ for IHT purposes and therefore a gift to a Bare Trust is a Potentially Exempt Transfer (PET) with the trust fund then falling inside the estate of the beneficiary.

Trustees are not required to complete a self- assessment tax return.

Capital gains are taxed on the beneficiary and accordingly the beneficiary’s CGT exemption may be used. This applies regardless of the beneficiary’s age and relationship to the donor.

Income is also taxable on the beneficiary

Bare trusts taxation

See how bare trusts are taxed, helping advisers understand income & capital gains treatment, beneficiary ownership rules & implications for planning strategies.

www.mandg.com

This is a better link which explains that if the OP has an interest in possession then the trustee pays the capital gains tax - not the beneficiary.

Trusts and taxes

A trust is a way of managing assets (money, investments, land or buildings) for people - types of trust, how they are taxed, where to get help.

www.gov.uk

 

[UK Contractor Accountant]

The sister of the op was not holding the property as a bare trustee but had depositive power and did sell the property. She was also presumably managing the property and renting it out for the OP?

She had no power to sell the property - from what the OP has stated she held the property in name only as "nominee" for the OP.

The fact that she sold the property without the OP's consent is why he won the Court Case - as Nominee she has now powers and has to act in accordance with the OP's instructions.

 

[Gyumri]

I think however you need to look at a bare trust which involves a sum of money and a bare trust which involves the holding of a property by a trustee. Are you saying that the revenue makes no distinction so that if a trustee holds a property say on trust for a person who lives in Timbuctoo then because that beneficiary is liable for CHT the trustee pays nothing and the revenue gets nothing because the beneficiary is not resident for tax purposes? That would be a nice business if true.

You also need to look at the distinction between a trustee selling property and when a trustee transfers property to a beneficiary which then ends the trust.

 

[Bobbo]

I think however you need to look at a bare trust which involves a sum of money and a bare trust which involves the holding of a property by a trustee. Are you saying that the revenue makes no distinction so that if a trustee holds a property say on trust for a person who lives in Timbuctoo then because that beneficiary is liable for CHT the trustee pays nothing and the revenue gets nothing because the beneficiary is not resident for tax purposes? That would be a nice business if true.

You also need to look at the distinction between a trustee selling property and when a trustee transfers property to a beneficiary which then ends the trust.

UK land and property is subject to CGT whether the beneficial owner is resident or non-resident.

 

[Gyumri]

She had no power to sell the property - from what the OP has stated she held the property in name only as "nominee" for the OP.

It doesn't matter when it comes to property. There may not be a Form A restriction at the land registry so the revenue won't know whether a property is being held on trust. It looks to the trustee/seller to pay the tax from the trust estate

 

[eteb3]

OP said "net proceeds", which absent anything else I would interpret as selling price less estate agent fees, conveyancing costs etc.

A trustee has a lien on all trust assets to meet tax liabilities associated with the trust, so net here must mean “net of CGT, if payable by the trust”.

If CGT unpaid for six months and if proceeds received y beneficiary, beneficiary can be assessed for CGT - but otherwise it’s the trustee.

CG33500 - Disposals by trustees: general - HMRC internal manual - GOV.UK

www.gov.uk

 

[GLAbusiness]

A trustee has a lien on all trust assets to meet tax liabilities associated with the trust, so net here must mean “net of CGT, if payable by the trust”.

If CGT unpaid for six months and if proceeds received y beneficiary, beneficiary can be assessed for CGT - but otherwise it’s the trustee.

CG33500 - Disposals by trustees: general - HMRC internal manual - GOV.UK

www.gov.uk

So, for the OP it's swings and roundabouts. If he gets the proceeds after tax paid, he does not pay again. Otherwise, he pays the tax. Either wat he gets the same net proceeds

 

[Bobbo]

A trustee has a lien on all trust assets to meet tax liabilities associated with the trust, so net here must mean “net of CGT, if payable by the trust”.

If CGT unpaid for six months and if proceeds received y beneficiary, beneficiary can be assessed for CGT - but otherwise it’s the trustee.

See CG34300 onwards. If this is a bare trust, then the trustee(s) is disregarded for CGT purposes.

 

[eteb3]

If this is a bare trust, then the trustee(s) is disregarded for CGT purposes.

Agreed. The question is whether it is a bare trust, and I think it can't be.

We don't have all the info from the OP, but it seems safe to assume the daughter wasn't doing nothing with the property while she was trustee of it (for an extended period, we infer).

If she was living in it or otherwise in possession, she had an overriding interest in it.
If she had let it out with trustor's knowledge, she had an interest in the income.

Either way the requirements of a bare trust aren't met: see CG3432:

The primary concept employed is that of 'absolute entitlement as against the trustee’, as defined in Section 60(2). Broadly, a person is so entitled where

1. the trustee has no control over the property except with the permission of that person, or
2. that person can take complete control over the property either immediately or on giving due notice to the trustee.

See also the examples in CG34380

The only way I can see it being a bare trust is if daughter never lived in the property, nor was ever entitled to any rent from the property. Possible, but highly unlikely, given we infer she was trustee for some time.