CG65450 - Private residence relief: settled property: trustees managerial powers

Trustees have administrative or managerial powers to deal with trust property which are expressed in statute and may also be included in the terms of the trust. Examples are powers of sale or leasing. A person who becomes a lessee of trust property by virtue of the exercise of the trustees' power to lease does not occupy as a result of the settlor's bounty but by virtue of the administrative act of the trustee in the course of managing the trust property for the benefit of those who are entitled to enjoy the settlor's bounty.

For example, trustees owned a farm, including certain cottages occupied by farm workers on service tenancies and a house which was rented out. One cottage was occupied rent- free by a retired farm worker. The occupation of each of these properties arises from the trustees exercise of their managerial powers and not from any entitlement under the settlement. So relief under TCGA92/S225 will not be due on the disposal by the trustees of any of the above dwelling houses.

Occasionally the terms on which the trustees allow a person to occupy a trust property may themselves give rise to a constructive trust. If this is suggested, the instructions at CG65417+ should be followed.

You may also see cases in which trustees allow a beneficiary to occupy trust property by exercise of their managerial powers in such circumstances that relief will not be due under Section 225 on the disposal of that property. For example, A is a beneficiary under a trust to the extent that he is entitled to an annuity of £100 a year. As a separate matter the trustees grant him a lease at a full rent of a house owned by the trust. Relief is not due under TCGA92/S225.

To summarise, if trustees allow a beneficiary to occupy a trust property, by the use of their discretionary power, relief may be due under Section 225 whether or not that beneficiary pays rent. If the trustees allow a beneficiary who would not have a right to occupy trust property under the terms of the settlement or under any discretionary power given to the trustees to occupy trust property, or they allow any third party to occupy trust property, they are doing so by exercise of their managerial powers and relief under TCGA92/S225 is not due. In any case of doubt or difficulty your papers may be submitted to Capital Gains Technical Group.