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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Private residence relief: settled property: what is settled property?

Settled property is defined in TCGA92/S68 as property held in trust except property held on a bare trust. A trust may be created in two ways. Express trusts are generally made in writing and are considered at CG65406. This guidance applies to trusts established under the law of England and Wales but similar principles apply to trusts established under Scots law or the law of Northern Ireland. Implied trusts arise by operation of law and are considered at CG65415+.

Bare trusts

Property held on bare trust will not be settled property. See CG34300+ for guidance on when property is held on bare trust. If the property is held on bare trust relief will not be due under TCGA92/S225 but the beneficial owner may be entitled to private residence relief under TCGA92/S222 personally if they meet the conditions for relief. For example, tenants in common, see CG70500+, will hold the property as trustees of a trust of land. This is a bare trust and they are each absolutely entitled to their share of the property. The trustees cannot claim relief under TCGA92/S225 in their capacity as trustees but may be able to claim relief under TCGA92/S222 in their capacity as beneficial owners.

Court orders

CG65365+ explains that certain orders made by a Court following the permanent separation or divorce of a married couple, or following the permanent separation or dissolution of a civil partnership, can create settled property. It is possible that relief under TCGA92/S225 can be claimed on a subsequent disposal of the property. The example at CG65376 illustrates the operation of relief in these circumstances.

Lease for life

Section 43(3) Inheritance Tax Act 1984 treats a lease of a property for life as a settlement and the property as settled property for Inheritance Tax purposes. See IHTM16191. This does not apply to capital gains tax. A lease for life should not be regarded as settled property, for the purpose of TCGA92/S225.