Capital to income

I have been asked to deal with the capital gains tax computation for a trust which owns a single asset; namely a let property.

No previous professional advice had been taken and there is an issue over the ten-yearly and exit charges but this is not immediately relevant.

The trust had built up a tax pool of about £15 000 but unfortunately over the years capital repairs have absorbed virtually all the net of tax income so that there was almost no cash available from which to make income distributions (in fact the beneficiaries have had to lend the trustees money to pay legal costs).

The trustees advanced the property out of the trust to the four beneficiaries (all basic-rate taxpayers) to take advantage of their annual exemptions (using holdover claims so as to reduce the overall capital gains tax bill) and shortly afterwards ...