Readers’ forum: Portfolio transfer

Writing for Taxation magazine, BKL tax adviser Terry Jordan answers a query about estate planning issues on transferring an investment portfolio to a trust.


My client created a settlement for his grandchildren many years ago. It qualifies as an interest in possession trust because it was created before 2006.

He would now like to do some more estate planning and is minded give away a personal investment portfolio, which is worth nearly £600,000. Of course, he would prefer to do this this without incurring any tax charges.

The trust has cash available, but not enough to cover the whole of the market value of the investments. Further, the trust has substantial capital losses. These amount to about £250,000, so would be able to cover the unrealised gains within the portfolio. How can the portfolio be transferred to the trust with minimal taxes?

Query 18,991– Tweeter.


Reply by Terry ‘Lacuna’ Jordan, BKL

Tweeter’s client created a settlement for his grandchildren more than seven years ago. ‘Estate’ interests in possession apparently arose before 22 March 2006 so that the current value will form part of the beneficiaries’ inheritance tax estates. From Tweeter’s description, it may have been a qualifying accumulation and maintenance trust. The trust has losses of about £250,000 that, we are told, would cover the unrealised gains within the client’s investment portfolio.
Further transfers now to the trust would be immediately chargeable, not potentially exempt, and within the trust the added value would be within the relevant property regime. On the premise that the client has his inheritance tax nil-rate band available he could transfer £331,000 worth of shares (if two annual exemptions are also available) without triggering an inheritance tax liability. The capital gains arising on the disposal could be held over under the provisions of TCGA 1992, s 260 and the trustees could later sell and use the losses.
We are told that the trust has some cash available and the client might sell some of the portfolio to the trust to restrict the loss in value to his estate. That would incur stamp duty at 0.5% on the basis that the securities are fully quoted and not on the alternative investment market (AIM). The provisions of TCGA 1992, s 260(5) would need to be considered if any of the portfolio is to be sold.



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