GWROB vs POAT on Lifetime Trust

Trusts Discussion
1

I am dealing with a matter whereby the deceased “W” and her late husband “H”, settled the property in which they lived into the names of themselves and that of their daughter as the Trustees of an IIP trust in 2001. They continued to live in the property until their respective deaths. The trust made provision allowing them to do so.

W has now died. When H died in 2009, the property was worth approximately £500,000. The property is now worth £990,000.

At the time H died the daughter dealt with his estate and the existence of the trust, although disclosed in the IHT forms, showed a value of the property at the date of his death as “nil”. I believe this should have been £250,000.

The property still remains in the three Trustees’ names.

So far as disclosing the property in the Inheritance Tax forms for W’s estate, it seems to me that the entire value of the property needs to be included, presumably in the IHT403.

H’s Will contained a NRB discretionary trust. However, because the property had already been settled and he owned very little else, the estate was actually insolvent, so there was nothing to transfer into the discretionary trust.

As a result, presumably this estate would ordinarily be entitled to his transferrable Nil Rate Band in addition to the deceased’s own NRB, save for the fact that his NRB will have been eroded by the GWROB.

I would also imagine that estate does not qualify for RNRB, as the deceased did not own a property as at the date she passed away, it was held in the trust and the same would apply to H’s estate, so neither RNRB is available.

This may be a silly question, but how do I actually check to see if the deceased was paying POAT?

Any guidance would be greatly appreciated.

Martyn Dixon
Harold Bell Infields & Co

2

As it was a GWROB, POAT will not apply.

The RNRB should be available for both as a GWROB will bring it back into the estate for the purposes of the RNRB. However, H’s ordinary NRB will have been eroded as you say.

Simon Northcott

3

Since the IIP was created pre-22.3.06 it was an ‘old-style’ IIP. The house remained in the estate of W & H so there was no GROB and no need to pay POAT. When H died, his IIP transferred to W and this would qualify as a transitional serial interest (and spouse exemption). Hence the whole of the value of the house was in W’s estate on her death and there is a full transferable nil rate band to be claimed from the estate of H.

The value of the house should be disclosed on form IHT418 (not IHT403). The house is included in W’s estate for RNRB purposes (see s 8HA IHTA). If the terms of the trust are such that it ended automatically on W’s death and goes to the daughter absolutely then RNRB may be available (including H’s transferred RNRB). Otherwise the house has not been ‘closely inherited’ and there is nothing that can be done post-death to remedy that.

You can check if someone has been paying POAT by looking at their recent tax returns.

Paul Davies
DWF LLP

4

Quite right Paul-should have checked the date!

Simon Northcott