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Replies to Queries - Trust has gone

07 April 2005
Issue: 4002 / Categories:

A United States trust, created under the terms of a client's father's will, was terminated in November 2002. This trust came into being from a 'qualified terminable interest property' (a 'QTIP') trust for the client's mother who died in 2000.
The client has been resident in the UK for many years and became domiciled by choice here in the 1990s. The TCGA 1992, s 87 issues relating to this trust have been dealt with.

A United States trust, created under the terms of a client's father's will, was terminated in November 2002. This trust came into being from a 'qualified terminable interest property' (a 'QTIP') trust for the client's mother who died in 2000.
The client has been resident in the UK for many years and became domiciled by choice here in the 1990s. The TCGA 1992, s 87 issues relating to this trust have been dealt with.
However, by the terms of the mother's will, one half of her free estate was to pass into the trust created by the father's will. Due to various problems in sorting out the estate, nothing was transferred until June 2004 when the assets were passed to the trust company responsible for the father's trust and thence onto my client who sold them shortly thereafter.
Due to the drop in the US stock market between 2000 and 2004, coupled with the drop in the value of the dollar, there would be a considerable capital loss between the sale proceeds and the probate values.
My questions are as follows.

1. Can the existence of the father's trust be ignored so that the client takes the assets as if they were a direct legacy?
2.  Assuming one has to resurrect the father's trust into a quasi-existence to accept the assets from the mother's estate and then treat the client as having had a further capital payment, what should be the operative date(s) for capital gains tax purposes?

Readers' views on these aspects are welcomed.
(Query T16,585) — Sonny.


Reply from Venta Belgarum

TCGA 1992, s 62(1)(a) will deem the assets in the mother's estate to have been reacquired by her personal representatives for UK capital gains tax purposes at their open market value (in pounds sterling) at the date of her death in 2000.
Upon the distribution of those assets in 2004, s 62(4)(b) will deem the 'legatee' to have acquired them at their 2000 probate value. On the face of it, the legatee will have been the father's trustees, but, for UK purposes, TCGA 1992, s 71(1) will have deemed the trust fund in question to have come to an end in November 2002.
Although the 'inclusive' definitions of legatee in TCGA 1992, s 64(2), (3) do not cover these precise circumstances, the better view is that the remainderman under the US trust should be regarded as a legatee in these circumstances. It would follow from this that the assets should be deemed to have been acquired by the client at their value in 2000, rather than in 2002.
Finally, although, as a general rule, there are no deemed disposals under the US capital gains tax code, US tax advice will be needed here to ensure that there have been no US chargeable events. Only where events of charge coincide, may a credit for foreign tax be offset against UK capital gains tax under TCGA 1992, s 278(1).

Issue: 4002 / Categories:
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