Tricky trust

Our client created a discretionary settlement tax-free with valuable shares that qualified for business property relief. The trustees are an ex-wife and a friend. The potential beneficiaries are his three children two of whom are adults.

He is thinking of selling two of his three private residences to the trust at full market value with the consideration left outstanding on loan. Apart from stamp duty land tax no tax liabilities arise on the sale.

The client wants to continue to occupy the residences rent-free – which feels “wrong”. The question is what the future tax consequences of this proposal might be. The issues appear to be as follows.

First there can be no issue with the gift with reservation of benefit legislation because there is no element of gift.

Second the pre-owned assets tax regime does not apply because the transaction does not contravene the distribution or...