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by Andrew Duncan
In our February 2010 Newsletter I referred to the provisions that would allow transfer of residences from a Trust or a Company or CC, Transfer Duty free, and with a roll-over of Capital Gains to the person taking transfer.
A new paragraph 51A has been drafted in terms of the Taxation Laws Amendment Bill that provides for greater flexibility on the basis that the previous provisions will fall away as from September 2010 and that as from 1st October 2010 and until end December 2011, a natural person will be entitled to take transfer of a residence, provided he or she (alone or together with his or her spouse) held all the shares in that Company from 11th February 2009 until the date of transfer, or disposed of the residence to the Trust by way of donation or other disposition or financed all the costs relating to the residence. In addition, that natural person together with his or her spouse or relatives (to the third degree of consanguinity) must have used the residence mainly for “domestic purposes” as of 11th February 2009 to the date of transfer.
The reference to “domestic purposes” is different from the requirement of the previous Section 51(1), whereby a person or his/her spouse was required to have “personally and ordinarily resided” in the residence. Thus provided a person does not rent out, for instance, a holiday home for more than 50% of the time, that residence would fall within the relief offered. However on the other side of the coin, the disposal by a Trust for instance of a holiday home to a person, would destroy the whole Estate Planning structure, with no CGT relief in the sense that there is no primary residence abatement for holiday homes.
The proposals however are to be further amended as a result of the Parliamentary Portfolio meeting and submissions made to it during early August, more particularly to include the position where a Family Trust holds the shares in that property owning Company and indeed where the shares in the Company or the costs of purchasing or maintaining the residence were also held by or contributed to by other family members. I indeed wrote to Treasury urging exactly this flexibility because if the aim is to simplify structures, then let’s do it properly.
These provisions are subject however to the Trust or Company in question being de-registered within a period of 18 months from the date of transfer. There is also some uncertainty as to the present suggested rule that 90% of the assets held by such Company or Trust must be constituted by the value of the residence. The Treasury have now accepted that this is overly restrictive.
We will have to await the final legislation to see exactly how flexible the provisions are going to be, but the important point is that Treasury have accepted the view that transfers can take place where the shareholder in the property holding Company is a Trust.
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