Can a beneficiary of a primary residence property, held in a Bewind Trust, claim a primary residence exclusion on this property when sold?
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
According to the definition, in paragraph 44 of the Eighth Schedule to the Income Tax Act, 'an interest' excludes … (ii) a right or interest of whatever nature in a trust or an asset of a trust, other than a right of a lessee who is not a connected person in relation to that trust.
Beneficiaries generally do not have ownership of the trust assets, which vest in the trustees, a beneficiary of a bewind trust does retain ownership of the trust assets.
The primary residence exclusion will therefore not be available in respect of the disposal of the primary residence owned by the trust.
SARS explains it as follows, see the last sentence below, in their CGT guide:
“A beneficiary having a vested right in a property held by a trust will not qualify for the primary residence exclusion, even if he or she resides in the residence, since the vested right comprises an interest in a residence. Although the property may have been vested in the beneficiary, it remains an asset of the trust in which that beneficiary has an interest. The exclusion from relief would not extend to a residence administered by a bewind trust, since the beneficiary retains full ownership of the residence and it cannot be described as an asset ‘of’ a trust.”