Following the Chancellor’s autumn statement, the trustees of any settlement owning a property upon which capital gains tax (CGT) gifts relief has been claimed must review their position, to avoid significant new tax liabilities.

The Chancellor announced legislation, effective from 10 December 2003, to counter the perceived exploitation of the interaction between CGT gifts relief and principal private residence (PPR) relief. As has been widely reported, this means that anyone with a second home no longer has the ability to use both reliefs to avoid all potential capital gains tax, for donor and trustees, which would arise on the gift of that property.

Retrospective legislation
As it applies to all disposals occurring on or after 10 December 2003, the legislation is retrospective, as it catches gains not crystallised. There is, however, a measure of relief for property transferred to trustees prior to 10 December 2003 with the benefit of gifts relief. Basically, the gains are time-apportioned either side of 10 December 2003, with PPR relief being available only on the gain for the period to 9 December 2003.

Trustee’s ownership
The impact is that the longer the property remains in the ownership of the trustees after 9 December 2003, the greater the chargeable proportion of the gain. This is almost regardless of what happens to property values in the future. Trustees have a duty to consider the effects of disposing of the property.

It is essential that trustees review their property holdings where they have been counting on obtaining full PPR relief.