My mother put her house into an interest in possession trust about 7 years ago. The beneficiaries are my sister and I.  The house is worth in its current state about £110,000 but it needs about £30,000 spending on it.  What are the situations, if any, that would cause my sister or I to have to pay capital gains tax?  I have owned my house with my husband for 24 years and this has been my principal residence. Would capital gains tax be due if my sister and I moved into my mother’s house and rented out my house?

If the trustees of the trust sell the property to a third party, at a price which is more than the market value of the house when it was put into the trust, then the trustees will have to pay capital gains tax on the difference. If the terms of the trust entitle you and your sister to occupy the house and you do so making it your principal private residence (PPR), then the trustees can claim PPR relief on the sale of the house, and at least the last three years of ownership will be exempt from CGT. This can be seen on page http://www.hmrc.gov.uk/manuals/cgmanual/CG65400.htm, and the following pages.