Winding Up A Relevant Property Trust


Rohan Manro

A tax adviser, Rohan successfully completed and passed his final CTA examinations (Advisory & Application and Interaction for owner-managed businesses).

The taxation of trusts is a particularly complex area of tax and this article is intended to provide an overview of some of the tax issues which will need to be considered when seeking to collapse a trust structure. This part deals with winding up a relevant property trust.

What is a Relevant Property Trust?

A relevant property trust is defined in the negative – essentially, all trusts which do not meet certain exceptions will be relevant property trusts. Generally speaking, trusts established with UK assets or by someone domiciled in the UK will qualify as a relevant property trust.

Some exceptions include trusts for charitable purposes, employee benefit trusts and employee ownership trusts. Please speak to a tax adviser If there is any question over the categorisation of a trust.

The relevance of this definition is that it applies a regime of taxation. When terminating a trust, the key tax consequences will be CGT and IHT. However, if the trust has accrued income there will also be income tax implications.

Winding Up A Trust

In most cases, a trust will cease at a given date or occurrence of a certain event at which point the beneficiaries become ‘absolutely’ entitled to the trust property. There will be a process required to transfer the assets into the legal ownership of the beneficiaries.

In other cases, a trust may be brought to an end early by the trustees or in certain circumstances by the beneficiaries. if not at the request of the beneficiaries. In this case, the trust will generally cease when the legal and beneficial ownership of assets are transferred to the beneficiaries.

The trust deed should be checked in all cases to establish when the trust ceases and whether there is any scope to bring it to an end before that date.

In either case, the key event for tax purposes is when the beneficiaries become absolutely entitled to the asset.

Capital Gains Tax

When a beneficiary becomes absolutely entitled to trust assets, the trustees are deemed to have sold the asset at market value (and immediately re-acquiring it on behalf of the beneficiary). As always, there are exceptions to this rule such as if there are multiple beneficiaries who have an interest in a single asset (say, residential property) there will not be a chargeable disposal until all the beneficiaries become absolutely entitled to the property.

The deemed sale is a taxable event for capital gains tax purposes and gives rise to a tax liability on the trustees. However, reliance can usually be placed on a claim for hold-over relief to defer the capital gains tax charge until the beneficiary disposes of the asset (actual or deemed) or indefinitely otherwise.

Again, there are certain restrictions to this relief and advice should be sought in all cases. If the relief is not available, the trustees should take steps to ensure they retain sufficient funds to meet this liability.

Inheritance Tax

Relevant property trusts are subject to IHT charges on every 10th anniversary of the trust. If assets leave the trust between 10-year anniversary charges, there will also be a charge based on the value of the asset leaving the trust – this charge is effectively a proportion of the 10-year charge that would have applied had the asset remained in the trust.

Each 10-year charge imposes a maximum liability of up to 6% of the value of the trust and any charges between 10-year charges will be a proportion of this.

The computations here are complex and advice should be sought in every case. However, as a rule of thumb, this charge should be manageable if the trust was established with assets within the nil-rate band (£325,000 or £650,000 for couples) and the value of the assets within the trust has not grown significantly.

Trustees should also consider whether the trust assets may qualify for any reliefs such as business property relief (“BPR”) or agricultural property relief (“APR”). Other reliefs may be available depending on the facts of each case.


The tax analysis may seem straightforward but in reality, may be complicated by the facts of each case. One will also need to take into account the various reporting requirements, self-assessment tax returns and IHT returns for trustees (and in some cases beneficiaries).

You may also like to read about Creating a Relevant Property Trust as well as other information on property tax. Or feel free to contact a member of our helpful tax advice team for more info on any of the topics mentioned above.

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