1. the company (generally) needs to be a trading company

This is defined as a private limited company which carries on one or more commercial trades or is preparing to do so within 2 years of the date on which the investment is made and that such trades constitute all or substantially all of its total activities.

Where a company has not commenced trading at the time of the investments, such trades should reasonably be expected to constitute all or substantially all of its total activities once it does commence trading.

Property trading will therefore qualify but FHL investments won't.

Note that a stakeholder company can also qualify. This is defined as a private limited company which exists wholly for the purpose of making investments in eligible trading companies (disregarding any incidental purposes) and which holds one or more such investments or is preparing to do so within 2 years of a qualifying investment being made.

2. No relevant person must be able to benefit or expect to obtain such a benefit, whether directly or indirectly. Relevant person includes the standard definition (non dom, spouse, minor children/grandchildren etc)

A benefit is defined as including anything which would not be provided to the relevant person, or would be provided but on less favourable terms, in the normal course of business but excluding anything provided to the relevant person in the normal course of business and on arm's length terms.

• the company ceases to be an eligible trading company or an eligible stakeholder company;

• the relevant person who made the qualifying investment ceases to be a relevant person or disposes of all or part of their holding;

• the extraction of value rule is breached or

• the 2-year start-up rule is breached.

The extraction of value rule is breached where value is received by or for the benefit of any relevant person from an involved company or from anyone else in circumstances directly or indirectly attributable to any investment made by a relevant person in an involved company and where that value is not related to a disposal of all or part of the holding.

The extraction of value rule is not breached where a person receives value in circumstances in which that value is subject to income tax or corporation tax, or would be so subject if the relevant person were liable to income tax or corporation tax, and provided on arm's length terms in the normal course of business.

So salary etc on an arms length basis paid from the company to the non dom/his family should be acceptable.

The 2-year start-up rule which applies where 2 years have passed since investment was made and the company has not commenced trading in that time.

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What the general anti avoidance rule could mean for UK tax planning

HM Treasury published its report on whether a general anti-avoidance rule ("GAAR") should be introduced into the UK tax system (the "Report"). The Report concluded that a GAAR would benefit the UK tax system, provided it was limited in its scope.

It recommends a moderate rule targeted solely at purely abusive arrangements and is unequivocal that the GAAR should not be broad enough to deter or counteract what they call the centre ground of sensible and responsible tax planning; with the onus of proving that any planning was not reasonable falling on HMRC.

The proposed GAAR would look to identify and counteract tax planning with abnormal features specifically designed to achieve a tax advantageous result.

On the basis that reasonable tax planning would not be targeted by the GAAR, the Report states it shouldn't be necessary for a comprehensive system of clearances.

The Report optimistically claims that, if introduced, the GAAR should ultimately lead to the simplification of the UK tax system, reducing the need for the mass provisions of specifically targeted anti-avoidance provisions that currently exist. The Report states that these create serious traps for tax payers to fall into, even when they carry out transactions to which such provisions were not intended to apply.

However, it is still unclear how any GAAR would be implemented in practice without providing the certainty that comes from a pre-transaction clearance regime.

While the Committee clearly envisage the extreme contrasting positions of the centre ground and the egregious tax avoidance schemes that the GAAR is intended to defeat, it does not appear to deal adequately with planning that might fall somewhere between the two and it is interesting to speculate how this gap might be filled.

The Report suggests that some certainty may be provided by the establishment of an advisory panel, independent from HMRC, which, it claims, could provide a quick and cost-effective way of helping tax-payers and HMRC identify the location of the outer-limit of this centre ground.

The conclusions reached by this advisory panel could be published, offering a body of guidance helpful in determining where the line falls between acceptable and unacceptable tax planning.

However, given that the Report suggests that the findings of the advisory panel will not be binding on the tax payer or HMRC, will its decisions really provide adequate piece of mind?

While the Report recommends that where there is any reasonable doubt as to which side of the line any arrangement falls on, then that doubt is to be resolved in favour of the tax payer, taxpayers are likely to be cautious to make assumptions as to how any GAAR will be applied, particularly in the earlier years of its implementation.

The biggest test will be in achieving the certainty that they require as to tax treatment of any given transaction, prior to putting it into effect. Whether tax payers turn to professional advice, opinions of tax Counsel or the tax insurance market to provide comfort is yet to be seen, but it certainly appears that, in the short term at least, this may represent a necessary additional cost for the prudent taxpayer.

The Government plans to respond fully to the Report as part of the Budget 2012.

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When UK residents can use an offshore company for good business planning

• There must be a transfer of assets by an individual

• As a result of the transfer income becomes payable to a non-resident person.

• The transferor must have power to enjoy that income in some way, or receive/be entitled to receive a capital sum.

• The transferor must be ordinarily resident in the UK in the year of liability.

If all of these conditions are fulfilled, the income which becomes payable to the offshore company/trust is deemed to be that of the individual who made the transfer, to the extent he has power to enjoy that income.

The UK tax authorities take a wide view of what constitutes a transfer of assets.

For example these rules may apply:

• where an individual transfers cash to establish a non-resident trust, or

• subscribes for the share capital of an offshore company, or

• where an individual transfers assets such as shares or property to a new or existing non-resident trust or other person or company abroad.

It can also apply where intangible assets are transferred; for example a UK individual may transfer his services to an offshore company.

It's rarely worth arguing that there is no transfer of assets, as the scope of the rule is very wide.

Therefore in practice any UK residents that look to transfer any income producing trade or assets into an offshore company will be very concerned with this provision as it will mean that they will still be taxed in the UK.

Motive exemption

There is though an exemption from these anti avoidance rules where you can show that:

• avoidance of taxation was not the purpose or one of the purposes for which the transfer was effected or

• the transfer and any associated operations were genuine commercial transactions and weren't designed to avoid tax (note this is UK tax)

Actually persuading the Revenue that you can take advantage of this exemption can in practice be difficult.

So who can take advantage of the motive exemption?

The main cases where you'll be able to take advantage of the motive exemption are:

• Where you carry on a business abroad. Provided the reason for the use of an offshore company is commercial you'll be able to claim exemption from the income tax avoidance rules.

So you'd be looking at any arguments that support your requirement to use an local company (eg for commercial purposes having a locally incorporated company may be preferred by customers etc).

• Where the offshore company is set up by someone who is not UK resident and not at that time concerned with UK tax.

Note that avoiding foreign taxes is OK and won't be caught by the avoidance rules, it's just if the offshore company is set up to avoid UK taxes that it will be caught.

If the individual subsequently comes to the UK he would then have a good claim for the motive exemption. There are also provisions to tax other family members that benefit from the offshore company, but again they would have a good claim for the motive exemption.

If a UK resident owning an interest in an offshore company can take advantage of this, they can use the offshore company as an income shelter avoiding tax on the income. They would need to obviously ensure they didn't extract dividends above their basic rate band otherwise tax would be charged on those.

A good way to access the cash could be to extract tax free after becoming non resident in the future.

There is no provision for a "clearance" or other advance ruling on the application of the motive defence. Claims to the motive defence may appear in the Foreign Pages of the Tax Return. The additional information section of the return may also be used to provide additional information about a claim.

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Tax treatment of offshore income gains for non doms

As most members will know, the UK tax implications differ according to whether the fund is a reporting fund or a non-reporting fund.

If an offshore fund is not a reporting fund a UK resident investor who disposes of an interest in the fund is treated as having made an offshore income gain and the gain will be subject to income tax at their highest income tax rate (ie up to 50%).

If the investor is investing in a reporting fund, it will pay capital gains tax on any gain at the current rate of 18% or 28% but will also be required to report their proportionate share of the total Fund income.

Any distributions by the funds will be treated as income in the normal way and will be subject to the dividend tax rate if the payment is from a Fund largely invested in equities.

As from 22 April 2009 these types of distributions will attract a non-repayable tax credit. If the payment is from a Fund which is substantially invested in interest bearing assets, meaning more than 60% by asset value, then the payment will be treated as 'interest' and taxed at the individuals highest income tax rate. No tax credit is available.

Non UK domiciliaries

Offshore income gains are treated as Relevant Foreign Income for the purposes of the Offshore Fund legislation.

As above if the individual is investing in reporting funds any gain realised on the disposal of his interest will, subject to the remittance basis, be charged to capital gains tax. A gain on any disposal of a non reporting fund will be chargeable to income tax but again this is subject to the remittance basis being claimed.

Separation of source

If a non dom is claiming the remittance basis, in many cases it won't be important to assess whether the gain is an income gain or capital gain. However, where funds will be remitted to the UK careful consideration should be given to segregating offshore income gains and capital gains in order to be able to identify the source of any funds remitted to the UK.

Mixed funds

As has been noted by one of our members, an offshore income gain, just like any other gain will constitute a mixed fund for tax purposes.

A mixed fund doesn't just include a bank account, but also includes any asset that consists of more than one source of income, gain or capital.

Therefore if the remittance basis is claimed in a year that an offshore income gain arises, any future remittance of the proceeds would be subject to the mixed fund ordering rules. This means that remittances would be the taxable income first before the tax free capital was remitted.

Losses on offshore income gains

The Offshore Funds legislation only applies where there is an offshore income gain so where a loss arises on a disposal there is no income tax relief. The loss will however be allowable for Capital Gains Tax purposes.

Non residents don't qualify for any loss relief but non domiciled individuals may if they make the appropriate loss election.

Offshore Trusts

Where an offshore income gain arises to a non resident trust the trustees are not subject to UK tax on the gain. However UK beneficiaries who receive capital payments from Offshore Trusts are subject to income tax to the extent that the capital payment is represented by an offshore income gain.

Non domiciled UK resident Settlors and Beneficiaries are able to benefit from the remittance basis of assessment on offshore income gains.

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New:Using a company tax calculator

Simply enter details of your profits and it calculates the total tax payable if you used a company as opposed to if you traded in your own name.

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Using a company tax calculator

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Non Doms & Overseas Capital Gains in 2011/2012

If your gains for the 2011/12 year are less than the £10,600 annual CGT exemption these could be remitted back to the UK tax free - as long as you don't have any other UK gains that have used up your exemption already. A married couple can enjoy up to £21,200 of tax-free capital gains per year.

Provided your other overseas unremitted income and gains are less than £2,000 there will be no further tax to pay.

If your overseas capital gains are slightly higher than the annual exemption it may still be better to pay tax under the standard arising basis so as to protect your income tax personal allowance.

At what point is it worth claiming the remittance basis? That depends on a number of factors, in particular whether you are subject to the £30,000 charge or not.

If you are subject to the £30,000 charge and assuming you earn no other overseas income and are a higher-rate taxpayer, you would need a gain of more than £107,143 to make claiming the remittance basis worthwhile:

£107,143 x 28% CGT = £30,000

This ignores the loss of the annual CGT exemption that applies to anyone claiming the remittance basis. When you take this into account, you would need to have an overseas unremitted capital gain of more than £117,743 (£107,143 + £10,600) for the 2011/12 tax year, before claiming the remittance basis would make sense.

This also ignores the loss of the £7,475 income tax personal allowance that also applies to anyone claiming the remittance basis (assuming your income does not exceed £100,000, the income level where all UK taxpayers start to see their personal allowances withdrawn).

The personal allowance saves a higher-rate taxpayer £2,990 in income tax during the current 2011/12 tax year. To compensate for the loss of this allowance you would need to have an additional £10,679 of overseas capital gains that you can shelter from UK tax by claiming the remittance basis:

£10,679 x 28% = £2,990

Therefore, in total, you would need to have at least £128,422 of unremitted capital gains before claiming the remittance basis could be worthwhile:

£107,143 + £10,600 + £10,679 = £128,422

It should also be noted that the above calculation assumes that your capital gains are taxed at 28%. Some capital gains (typically from selling a trading business) may qualify for Entrepreneurs Relief and would only be taxed at 10% under the arising basis.

In these situations, you may need overseas capital gains in excess of £300,000 (£300,000 x 10% = £30,000) before claiming the remittance basis starts to make sense.

It should also be borne in mind that if you pay tax overseas on the gain this would also need to be taken into account.

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When can UK domiciliaries use an offshore trust to reduce UK taxes?

We're often asked about when an offshore trust can be used tax efficiently. It can be very attractive for non doms - but what about UK domiciliaries? In this article we look at when offshore trusts can be used by UK doms.

Using an offshore trust involves a number of UK anti avoidance rules.

Firstly to establish the trust as non resident you would need to ensure that all of the trustees were non resident.

If you establish a trust as non resident there are a variety of potential UK tax advantages, however the benefits will be heavily restricted. We'll look at the UK tax implications below

Inheritance tax

The transfer to a UK discretionary trust would usually be a chargeable lifetime transfer, and the trust itself would be subject to the inheritance tax regime for discretionary trusts. As such there would be a 10 year anniversary charge and an exit charge on the distribution of assets from the trust.

However providing the settlor survives for 7 years from the date of the transfer the assets transferred would usually be excluded from their estate for IHT purposes.

If you used an offshore trust, the inheritance tax implications would be similar. The transfer to the trust would be a chargeable lifetime transfer ('CLT') for IHT purposes, and therefore a transfer of value above your remaining nil rate band would be subject to a lifetime IHT charge. If the trust was a non resident trust you would not be able to defer gains on the transfer to the trust.

If the trust was an excluded property trust it would be outside the scope of the UK IHT discretionary trust regime. However in order for it to be an excluded property trust it would need to hold non UK assets and be established by a non UK domiciliary. If you are a UK domiciliary the trust would therefore be subject to the usual regime of 10 yearly anniversary charges and exit charges.

Capital Gains Tax

There are some very far reaching anti avoidance rules that apply to UK domiciliaries establishing offshore, non resident trusts, especially in terms of capital gains.

The non resident trust would be outside the scope of UK CGT, unless it held assets used in a UK trade. In addition it would be likely there would be no CGT levied in the overseas jurisdiction where the trust is resident. This gives the offshore trust a clear advantage over a UK trust.

However there are two key anti avoidance rules that can apply.

Firstly S86 TCGA 1992 which attributes gains of an offshore trust to UK resident settlors if defined people are actual or potential beneficiaries or receive a benefit.

The term "defined person" included the settlor/their spouse, their children and their childrens spouses and their grandchildren and their grandchildrens spouses.

This is a very wide anti avoidance rules and means that an offshore trust could only be used to shelter gains if your the spouse, children and grandchildren (and their respective spouses) were all totally excluded from benefiting from the trust.

If they weren't then the settlor would be taxed on the gains of the trust during their lifetime.

In the future after they were deceased the gains would effectively be taxed on distributions to the the beneficiaries (see below).

Income

As a non resident trust it would be exempt from UK income tax on foreign income. Therefore by retaining trust income producing investments overseas the trust could avoid a UK income tax liability.

There are provisions to arttibute income to UK individuals if they transfer assets to an offshore trust and have the power to enjoy or benefit from the trust. Therefore in order for the settlor to avoid being taxed directly on the income of the trust they would need to ensure that they and their spouse was totally excluded from benefiting from the trust.

If the trust beneficiaries were UK resident children and grandchildren, the trust could therefore initially operate as an effective shelter for foreign income. On the settlors death it could then become a CGT shelter.

It should be noted that a distribution to the UK beneficiaries would be subject to UK income tax.

However the scope of the tax charge would vary.

Broadly speaking there are two options to extract cash from the trust:

• Income distribution

• Capital distribution

Income distributions

Distributions of income to a UK beneficiary are subject to UK income tax.

Capital distributions

Capital distributions from an offshore trust will be taxed under the anti avoidance rules. There are two sets of rules that could apply.

Firstly there's the transfer of asset provisions that can apply to tax capital distributions as income where there is accumulated 'relevant' income in the trust.

'Relevant' income for this purpose means income that arises to the offshore trust which can be used to provide a benefit for the beneficiary concerned. Income is only taken into account once for this purpose. Therefore rental income for instance received by the trust and held in the trust would be treated as relevant income for this purposes.

If there is any relevant income in the trust and a capital distribution is made the capital distribution could be taxed on the UK resident beneficiary as income to the extent of the relevant income.

This is subject to the motive exemption.

If there is no relevant income in the trust or if the motive exemption applied there would be no tax charge under this provision. However, in this case the beneficiary would be subject to CGT if there are capital gains in the trust.

The capital gains tax charge on the beneficiary effectively looks to tax capital gains that have arisen to the trust (but were exempt as it's non resident) on the beneficiary. There would need to be a separate pool to match the gains with capital payments to beneficiaries. The gains are only allocated to capital payments once.

Why make an income distribution?

Lots of offshore trusts distribute trust income as income. This has some advantages including:

• Withholding tax borne by the income is set against UK tax charged on the beneficiary

• The income could be directed at low or nil income beneficiaries (eg children)

• UK tax is avoided if the beneficiary is non resident or non domiciled and claims the remittance basis (and retains the income abroad).

Complexity of capital distributions

Capital distributions can be very complex. It's essential that the trustees provide a full computation of their income and gains for each year. It is necessary to know the total since inception of the trust less any previously allocated to income or capital payments.

If there is no relevant income or capital gains in the trust there would be no tax on the receipt, at least at the date of the payment. If relevant income or capital gains arose in the future a tax charge could well apply in the future.

One option to wash out gains in the trust could be to distribute the trust fund to a non resident or a non dom beneficiary. These distributions would not be taxed either for offshore income or capital gains (subject to the non dom claiming the remittance basis & retaining the receipt abroad).

If the entire trust fund or an amount equal to the net trust gains to date was distributed there should be no further UK tax. In the latter case they could then wait a year and distribute the other trust assets to UK beneficiaries free of UK tax.

In terms of whether to use an offshore or UK based trust, this is something that you would need to consider. However, if the beneficiaries are to remain UK resident the income/gains would be subject to UK tax on the trust distributions.

The tax treatment of offshore trusts is also very complex and you would incur substantially higher charges in terms of the initial set up and ongoing trust management expenses (including appointing non resident trustees etc).

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Entrepreneurs Relief and the remittance basis

Entrepreneurs Relief applies to the disposal of trading businesses and also shares in certain trading companies.

It's a valuable tax relief as it can reduce the capital gains tax rate to 10% on gains of up £10,000,000 (after April 2011).

Non UK domiciliaries can still claim Entrepreneurs Relief, just as UK domiciliaries can, whether they claim the remittance basis or not.

In this post we look at how Entrepreneurs Relief will apply to non UK domiciliaries.

Arising basis

If non doms claim the arising basis in the tax year that the capital gain arises they'll be fully charged to capital gains tax on the disposal. As such if Entrepreneurs Relief is due (eg they're selling shares in their overseas trading company) it will be offset as usual and they'll then be taxed at 18% on the remaining gain.

Remittance basis

If they opt for the remittance basis they'll only be taxed on any proceeds that are brought back to the UK.

The downside to the remittance basis is the loss of allowances (eg annual CGT exemption & personal allowance) and the potential £30,000 tax charge once they've been here for 8 years.

If they are subject to the £30,000 tax charge they would only claim the remittance basis if the overseas capital gain that was not remitted to the UK exceeded around £175,000 (assuming no other other overseas unremitted income etc). If it was less than this they'd be better off opting for the arising basis and just paying the £30,000 tax charge.

When choosing whether to opt for the remittance basis or not there would need to be a gain of around £300K that would otherwise qualify for Entrepreneurs Relief, retained overseas before the remittance basis would make sense. This assumes of course that the £30K tax charge was payable.

If the remittance basis is chosen (eg due to a very high gain or no £30,000 tax charge being due) when calculating the tax due on any remittance you also need to take account of Entrepreneurs Relief.

So if overseas shares were sold for £1,000,000 with a gain of £500,000.

The seller could opt for the arising basis but instead goes for the remittance basis.

No CGT is payable on the disposal as all the proceeds are retained abroad.

He then remits £100,000 in the following tax year.

The total capital gain is £500,000 qualifying for Entrepreneurs Relief. Under the new remittance rules he'll be charged on the capital gain first as the remittance is deemed to be the capital gain. Therefore the full £100,000 would be taxed as a capital gain. This would be taxed at 10%.

Note that whether he claims the arising basis or the remittance basis in the future tax years when he remits the proceeds is irrelevant. In either case he will be taxed on the remittance of the proceeds as above.

Gain exceeding the lifetime allowance

What about the situation where a non dom realises an overseas gain qualifying for Entrepreneurs Relief which exceeds the £10M lifetime allowance?

It's an interesting question. Certainly Entrepreneurs Relief would be available to an individual who claimed the remittance basis. As such on a future remittance the 10% rate of CGT would apply. In terms of what would happen with a gain above the lifetime allowance then its not clear cut.

My view is that there would certainly be a mixed fund. The fact that the cash overseas represents both capital gain and capital would make it a mixed fund. In any case a mixed fund is defined as:

"... an overseas fund of money ... which contains ...more than one type of income or gains, and/or income or gains from more than one tax year..."

The ordering rules from remittances from mixed fund don't provide any detail as to which gain is to be treated as remitted first. As cash held within a mixed fund is treated as losing its identity (hence the requirement for the mixed fund rules) there's a good argument that the remittance would be attributed between the gain qualifying for Entrepreneurs Relief and the gain that doesn't qualify.

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Tax changes in the 2011 Autumn Statement

We had the Autumn statement yesterday, and in terms of tax changes that could affect our members there's nothing really significant - at least not yet.

The main changes are below.

New Investment Relief

They've previously announced that Enterprise Investment Relief ('EIS') and Venture Capital Trust ('VCT') relief are to be amended.

In line with this they're going to introduce a new Seed Enterprise Investment Scheme (SEIS) from April 2012. This will provide income tax relief of 50 per cent for individuals who invest in shares in qualifying companies, with an annual investment limit for individuals of £100,000 and cumulative investment limit for companies of £150,000.

In addition there will also be a CGT exemption for gains made in 2012/2013 where the proceeds are invested in a SEIS in 2012/2013.

We've not got any further details yet but if it provides for a complete CGT exemption (unlike the deferral under the current EIS relief) on any assets it could prove very valuable when the 50% income tax relief is also taken into account.

They will also simplify the EIS by relaxing the connected person rules and the definition of shares that qualify for relief.

Corporation Tax Rates

The small company rate of corporation tax is 20% (for companies with <£300,000 of profits). The main corporation tax rate is currently 26%.

This will fall in April again to 25 per cent and by 2014 it will reach 23 per cent - the lowest rate in the G7 and one of the lowest rates in the G20. Still some way off the rates in the IOM, Jersey, Cyprus and Irelands though.

They've also announced they will publish further details of the Patent Box and of its reform of the Controlled Foreign Company rules on 6 December.

100% capital allowances

They will make 100 per cent capital allowances available in the Black Country, Humber, Liverpool, North Eastern, Sheffield, and Tees Valley Enterprise Zones;

CGT annual exemption frozen

The CGT annual exemption for 2012/2013 will be frozen at the 2011/2012 amount (£10,600).

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Buying a property tax efficiently while your children are studying

However, given the currently low prices, if you're looking at the long term with perhaps other family members occupying the property and also renting it out to third parties it can still be a worthwhile investment.

If you were looking to structure such an investment you have three main options:

Unless you're a non dom there would be no advantage to using offshore structure here, so we'll just consider UK trusts.

Purchasing in your name

If you purchase in your name you obviously have total control over the property, however it is generally a tax inefficient option.

As you haven't occupied the property as a main residence you won't get principal private residence ('PPR') relief on a disposal. In addition the property will remain within your estate for inheritance tax purposes.

Purchasing in your children's name

There is an immediate inheritance tax advantage as after 7 years the value gifted will be excluded from your estate (provided you don't continue to benefit from the property).

However the PPR relief position would not be straightforward. If you purchased in the name of one of your children they would only obtain PPR relief to reduce the gain on a disposal for the period that they actually occupied the property. If they occupied the property for say 4 years and then another sibling occupied it there would not be total relief from tax on the disposal.

Even if you purchased the property in multiple names unless they all occupied the property for the entire period of ownership (except for the final 36 months) there would not be full PPR relief. The other disadvantage of purchasing in your children's name is that they would have full control over the property (although you could mitigate this with a charge over the property).

Using a trust

In most cases using a trust would be a very attractive option. It provides for flexibility in terms of the occupation, gives you some element of control and also has significant tax advantages.

Consider the following arrangement:

The property is then let for six years and finally sold for a gain of £200,000 after ownership for 15 years.

The main benefit is terms of Capital Gains Tax. Assuming CGT is paid at 28%, the tax due would vary considerably. If the property had been bought by:

a. you, the tax would be £44,800;

b. your child, it would be £22,400;

c. the trust, it would be £NIL.

As the property is occupied by more than one beneficiary this enables the trust to benefit from a number of aspects of the principal private residence relief whilst also benefiting from letting relief.

The occupation by two children as beneficiaries of the trust enables the trust to relieve a much greater percentage of the chargeable gain and, in this instance, all that remains is then mitigated by letting relief.

If the trust excludes you, then the amount settled by you will drop out of your estate for Inheritance Tax (IHT) purposes after seven years. However, if IHT planning is not an objective of this arrangement, then all the family, including yourself, can be beneficiaries of the trust without losing the CGT advantages and everyone can benefit under the terms of the trust when it comes to dividing up the proceeds.

Another issue is what happens to the property if it's not sold. Your first child may have married, and even entered into a divorce. If the capital is advanced when the proceeds are realised, then on divorce, half of the capital would be lost. If instead, the trustees loan the capital to "child one", then on the dissolution of the marriage the capital can be recovered (as it is a debt to the trust) and, at a later date, the capital can be advanced directly to "child one".

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