A property is held in a trust and the trustee lives in the house. Can he reside rent-free or is he required to pay rent? Is there an exception for trustees?
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
This is definitely not a request that requires guidance with respect to tax legislation. The principle at law is that the free use of the asset will only have tax implications for the beneficiary if it involves the vesting of income (or a capital gain) by the trustees. We accept that the trustees of the trust acted within their mandate to allow the individual to occupy the home.
Judge Scott in Jowell v Bramwell-Jones, said that a “trustee must generally speaking avoid as far as possible a conflict between her personal interests and those of the beneficiaries”. At issue is whether the use, by the trustee of property in the trust for personal purposes, “amounted to a breach of her fiduciary duty or not” and “depends on a balancing of conflicting interests.” But this is not a tax issue, but to be decided on the basis of the common law and Trust Property Control Act.
You will need to obtain the terms of the agreement between the trust, represented by the trustees, and the trustee (who obtained free use), before you can correctly advise the parties here.
Tax consequences will arise if the trustees used income that accrued to the trustees to fund expenditure relevant to this private use and where the trustee is in receipt of remuneration from the trust.