P.E.T. Trust

I have a flat which I have owned for many years and which I have
always rented out. If I sold it now I would have to pay around
£37,000 CGT. This I could afford and I would now like put the flat
into a trust for my 18 year old daughter but I want to crystallise the
CGT liability at the time the trust is set up - rather than load her
with a huge CGT liability in the future which she might ill afford.
Hopefully she can receive the rental income from the day when the
trust is set up. Later she would move into it as her PPR.
Hopefully also, as this would be a P.E.T., no 20% front end tax would
be levied on the trust.
Hopefully also no SDLT would be payable on this transfer.
Lots of hopefulls there but is this feasible?
Reply to
Dulwich
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In message , Dulwich writes
The gift should crystallise the CGT on you, so no problem.
It would only be a PET if you created an absolute trust, but as this appears to be your intention then that is no problem. If it is NOT your intention (i.e. you want to build in some discretion) then it could be a CLT.
Hmm,not sure about that.
Why not just give her the flat?
Reply to
John Boyle
In my view, an 18 year old who is setting out for university has lots of pressures, external influences and potential temptations. I'm confident that when she gets to be 24/25 years old she can handle these better.
One alternative is to give it jointly to her and her brother who is 2 years younger. That way there's less chance of things going wrong.
Or maybe I'm just being over cautious.
Reply to
Dulwich
More chance, I shouldn't wonder.
Why not give her a 99% share in the flat, thereby retaining a measure of control?
Reply to
Ronald Raygun
Why not? No consideration, no SD. If it's a gift, it should be OK, provided there is no outstanding mortgage.
Just what I was wondering. All this trust stuff seems an unnecessary complication.
Reply to
Ronald Raygun
In message , Dulwich writes
Thats fair comment.
But he cant be a party to the ownership if he is only 16.
Reply to
John Boyle
Sounds good - as long as this means it could not be disposed of without my agreement.
What documentation would I need to arrange this?
Reply to
Dulwich
On Sat, 06 Oct 2007 00:48:11 -0700,
Assuming the OP isn't already using up his CGT allowance each year he could give her 16% per year which would mean she owned it outright at 24 and have no CGT bill to pay.
It wouldn't even look like he was trying to keep some control until she is 24 ;-)
Tim.
Reply to
Tim Woodall
I think it would indeed mean that, because no buyer would want to buy 99% of a property, so a disposal would only go ahead if you also sold your 1% share. More to the point, no mortgage lender would lend unless all joint owners agree to the mortgage, and if you refused then the would-be buyer couldn't get a loan.
You would simply need to write a memorandum in which you declared that you were gifting your daughter such-and-such a share of the property (you would need to describe the property adequately), and it would be good also to note what you believe the market value to be at that time.
The memorandum should be signed, dated, and witnessed, and it might be wise to send a copy to the taxman.
You might also like to register her as a co-owner at the land registry. I believe they do not record proportions of ownership, and you can change them freely by means of further memoranda.
It is better, as Tim Woodall suggested, to gift her small chunks every year. This has the joint advantage of you keeping control and of keeping CGT low or zero, by maximising use of your annual exempt amounts.
Provided the property is not mortgaged, there will be no stamp duty to pay since a gift is a transfer for zero consideration, and SDLT is assessed on consideration, not value.
Reply to
Ronald Raygun

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