Written by Ray Coman
A trust is used to separate legal ownership from beneficial ownership. A property held in trust would be subject to income tax and CGT, but probably with reduced allowances. If the trust is 'settlor interested' i.e. the property reverts to the original owner, then there is rarely any tax advantage.
Although there may be no specific tax advantage, trusts are often used to manage family wealth. For instance, a trust could be used to provide rental income to one person (the life tenant) and a property for another person (the reminderman) on the death of the life tenant. This arrangement is a common feature of a will, in which a rental property is put into trust to provide an income for a surviving spouse, but the property eventually passes to children.
A trust is entitled to principal private residence relief where it is occupied as the home of a beneficiary who is entitled to occupy the property under the terms of the trust.
It is usually possible to claim hold over relief, so that there is no capital gains tax to pay on transfer of property into a trust. However, if hold over relief is used on a transfer into a trust, a principal private residence (PPR) will not be available while the property is held in trust. Therefore, to preserve PPR, capital gains tax could arise on appointment of property into a trust.
Notwithstanding the above, a trust has value as a method of providing a residence for a person without transferring property outright. The principal private residence relief is available to the occupier even though they do not own the property.
Trust planning is used less frequently as a consequence of a series of legislative changes which have reduced their tax efficiency. Nevertheless, we are pleased to advise on the tax consequences of any trust arrangements used for holding property.