Investors’ Relief: qualifying disposals by trustees: example
The trustees of the TM Trust hold a number of assets on trust for Tanya, David and Kristin in equal shares. All three beneficiaries have an interest in possession in all of the settled property of the trust.
Among these assets are shares in XY Ltd. XY Ltd is a trading company which the trust invested in (subscribing for newly issued fully paid up ordinary shares) in August 2016. The company does very well, and in September 2020 the trustees decide they want to sell the shares they hold.
XY Ltd was a trading company throughout the period the TM Trust held shares in it, and it met the conditions for Investors’ Relief throughout.
Neither Tanya nor David have ever been employed by XY Limited, and are not connected with anyone who has been. Kristin got a job with XY Ltd in 2018 and continues to work there in the accounts department.
The trustees sell their shares in XY Ltd, and make a gain of exactly £3m on the trust’s holding.
David has not held or sold any shares as an individual, and has had no trust gains attributed to him up to September 2020. David therefore has his entire £10m lifetime allowance available.
Kristin has her entire £10m lifetime cap available, but because she is a paid employee of XY Limited, she cannot be an eligible beneficiary because of the restriction in TCGA92/S169VH(2)(c).
Tanya had made a number of investments which qualified for Investors’ Relief. In 2019 she sold a number of these investments making substantial gains. She used up £9,600,000 of her £10m Investors’ Relief lifetime allowance. Tanya therefore has £400,000 within her lifetime cap available.
Each beneficiary has one-third of the gain attributed to them for the purposes of Investors’ Relief. Taking each beneficiary in turn:
Tanya is an eligible beneficiary. Her ‘share’ of the gain is £1m. Of her £1m gain, she and the trustees can jointly claim to have £400,000 of it subject to Investors’ Relief. The rest will be taxed on the trustees at the normal CGT rate.
David is an eligible beneficiary. His ‘share’ of the gain is £1m. Of this £1m gain, he and the trustees can jointly claim to have the entire £1m gain subject to Investors’ Relief.
Kirstin is not an eligible beneficiary. Her ‘share’ of the gain is £1m. No claim to Investors’ Relief can be made for this share of the gain.
When returning the gain, the trustees will include two claims to Investors’ Relief. One claim will be jointly made with Tanya (for £400,000 of the gain to be taxed at 10%), and the other jointly made with David (for £1,000,000 of the gain to be taxed at 10%).
See CG63500 for a general description of the relief and the layout of the guidance.