In this week’s Q&A, Kiya Jacobs, tax advice consultant at Croner-i, explains the tax implications of principal private residence relief when considering the sale of a property in trust
I am acting for an interest in possession trust that owns residential property that the life tenant occupied as their main residence for the whole period that it was in the settlement.
The life tenant has moved into a care home recently and the trustees are thinking of selling the property but are concerned with any capital gains tax that may arise here. Would the trustees be able to claim principle private residence relief for the full period?
Principle private residence relief is available for trustees if they meet the conditions in section 225 TCGA 1992. The beneficiary must be entitled to occupy the property under the terms of the settlement which is usually the case for the life tenant of an interest in possession trust.
If the trustees meet the conditions in s225 Taxation of Chargeable Gains Act 1992 (TCGA 1992) then the usual rules of s222-s224 shall apply here for the relief. This means that the trustees would also be entitled to the last nine months as deemed occupation.
This claim is not automatic in the same way that it is for individuals and the trustees must make a claim for this relief as stated in s225 (1) ‘but section 223 (as so applied) shall apply only on the making of a claim by the trustees’. The claim will usually be made via a trust self-assessment tax return.
In your client’s situation there is also the potential of s225E TCGA 1992 being available which extends the last nine months’ deemed occupation period to 36 months if the person entitled to occupy under the terms of the settlement is a long-term resident in a care home.
As you do not mention how this trust was created, a potential restriction here is in s226A TCGA 1992.
This restricts the availability of principle private residence relief where holdover relief under s260 was claimed on the earlier acquisition.
Therefore, you will need to ensure that this was not the case here as this would stop the trustees from being able to claim the relief. Section 260 relief would only be available on lifetime transfers made into an interest in possession trust on or after 22 March 2006.
Assuming no prior s260 relief was claimed, if your client meets the conditions in s225 and s225E, then as the life tenant has occupied the property throughout the trust’s ownership, the trustees will only have a capital gains tax issue if the trustees sold the property after the life tenant had been in a care home for over 36 months.