I have a client who holds all their properties in a trust. Their primary residence is one of these properties, which they intend to sell now to move to an old age home. Upon selling this property there will be capital gains tax implications of which I wou
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
We accept that with “client who holds all their properties in a trust” you don’t mean that the client, as beneficiary of the trust, has a vested interest in the properties owned by the trust.
The question of whether the capital gain that results from the disposal of the property (used by the beneficiary) as a primary residence, can be ‘distributed’ by the trustees must be answered with reference to the trust deed. If the trustees are duly authorised to do so, and then in terms of paragraph 80(2) of the Eighth Schedule, where a trust determines a capital gain … in respect of the disposal of an asset in a year of assessment during which a beneficiary of that trust … who is a resident has a vested right or acquires a vested right (including a right created by the exercise of a discretion) to an amount derived, directly or indirectly, from that capital gain … but not to the asset disposed of, an amount that is equal to so much of the amount to which that beneficiary of that trust is entitled in terms of that right as consists of or is derived, directly or indirectly, from—
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that capital gain must be disregarded for the purpose of calculating the aggregate capital gain or aggregate capital loss of the trust; and
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that capital gain or the amount that would have been determined as a capital gain must be taken into account as a capital gain for the purpose of calculating the aggregate capital gain or aggregate capital loss of that beneficiary.
We don’t know what you mean with treat the capital vested in them “the same as any other capital gains in their own hands”. The primary residence exclusion is not available to the beneficiary, even where the right or interest in an asset of a trust was a right of a lessee.
Paragraph 80(2)(b) requires that this capital gain must be taken into account as a capital gain for the purpose of calculating the aggregate capital gain or aggregate capital loss of that beneficiary. Under paragraph 7 of the Eighth Schedule, a person's aggregate capital loss for a year of assessment is the amount by which the sum of a person's capital losses for the year exceeds the sum of –
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that person's capital gains for that year and any other capital gains which are required to be taken into account in the determination of that person's aggregate capital gain or aggregate capital loss for that year; and
in the case of a natural person or a special trust, that person's or special trust's annual exclusion for that year.