Insights & advice

Trust protects family home from thousands of capital gains tax

Setting up a simple trust relating to his mother‘s home has saved a man and his wife several thousand pounds in capital gains tax.

The case involved a woman who sold her house in 1996 to her son and his wife on condition that she was allowed to continue living there for the rest of her life or until she remarried.

She remained there until 2005 when she went to live with her son and his family following an injury. Her home was eventually sold in 2007.

HMRC calculated that the couple had made a large profit on the property, which meant that they were each liable to pay capital gains tax. The couple argued that the property was held on trust and so was not liable to capital gains tax.

Tax officials said the money was payable because the couple had acquired ownership of the property and simply granted a lease to the mother.

The tax tribunal ruled in favour of the couple. It said that in parting with ownership of her home, the mother was placing herself in the hands of her son and daughter-in-law, but only on the basis that they accepted specific legal obligations to her.

The couple had to let her continue living there. They did not have complete control over the property and were not free to sell it or do anything else with it without the agreement of the mother.

That was the only basis on which the mother had been prepared to give up absolute ownership of her home. In acquiring the property on these terms, the couple were assuming the role of trustees and so therefore were not liable to pay capital gains tax.

As this case illustrates, trusts can be extremely useful in shielding assets from tax liability. However, they have to be drawn up correctly to ensure they are effective.

Please contact Michelle Stopford in our Warminster office on 01985 214444, or Sarah Gratton in Westbury on 01373 865577, or email or if you would like more information about trusts and protecting your wealth.

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Just a short note to once again express my sincere thanks to you, Sue and the M&U team, for all your help, cooperation and first class professional support. I am most grateful to you all.

Chris Stephenson, Warminster

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