There are several tax points here that need to be considered.
Capital Gains Tax
The trustees can make a claim for principle private residence relief on the sale of the property under s225 TCGA 1992. As your client has been in residential care, the last 9 months of ownership available for PPR can be extended to 36 months under s225E TCGA 1992. The trustees will have to make a formal claim for PPR to apply as it does not apply automatically.
Inheritance Tax
Firstly, as this trust was settled on death of your client’s spouse this would mean your client has an immediate post death interest – s49A IHTA 1984. This means that this is not a relevant property trust and so not within the scope of the IHT ten year and exit charges regime.
A consequence of the IPDI is that the trust property is already in your client’s IHT estate and so the transfer of the sale proceeds from the trustees to your client would not result in any disposition for IHT purposes.
Selling your client’s main residence will affect the availability of the residence nil rate band being available on their death. However, the downsizing addition of s8FB IHTA 1984 could be considered here depending on who is the beneficiary of your client’s estate under her Will. HMRC’s guidance on the downsizing availability is at IHTM46000 starting at IHTM46050.
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