Husband has died. In his Will there is the standard NRBDT clause leaving “the largest sum of cash which could be given on the trusts of this clause without any inheritance tax becoming due in respect of the transfer of the value of my estate which I am deemed to make immediately before my death”.
There are shares in a family business within the estate which may qualify for BPR at 100%. Are they included in the trust even though they are not “cash” within the definition?
Thank you Paul. That was always my understanding but other solicitors have advised differently so I doubted myself. I then got myself muddled by reading in James Kessler’s book that this type of clause has unintended consequences with BPR property because of section 39A IHTA. I’m not sure I understand how!
If the legacy is for cash and the shares are appropriated in satisfaction, as they were not specifically left to the Trust I believe s39 operates to spread the benefit of the BPR over the estate as a whole. Assuming the value of the shares is 50% of the estate as a whole then 50% of the BPR will apply to the other assets in the estate even though they may be covered by spouse exemption.
Where property which qualifies for BPR (or APR) is not, under the will, left as a specific gift (ie it falls to be treated as part of residue) any BPR is then pro-rated amongst all the gifts contained in the will (s39A). In effect gifts which are not eligible for BPR are accordingly reduced.
Where property qualifies for BPR and is left as a specific gift any BPR reduces the property’s value (ie there is no dilution of the BPR).
As a retired professional tax advisor my advice would be to check with clients whether they hold any BPR or APR qualifying assets – especially if unquoted and if they have not to prepare a Will whereby s39A will operate.
S39A can have unfortunate consequences and requires a detailed calculation requiring possibly costly valuations, which it is my understanding cannot be agreed with HMRC.
The reason being that whilst understandably HMRC will want to be satisfied that the asset qualifies for BPR or APR they are not concerned with and will not enter into negotiations about the value of the asset.
As an aside. If husband’s Will had simply left his whole estate into a discretionary trust would it be possible to capture the BPR using a deed of variation within two years of husband’s death? eg appointing the business assets to non - exempt beneficiaries?
You would have to appoint the discretionary fund absolutely within 2 years, s144 readback, and then the appointee could complete a DOV under s142, as this would be treated as a variation of a disposition under the Will (because of the s144 readback) for
Iht purposes.
Having said that, you need to watch the possibility of the appointment being a fraud on the power if the appointment was made in the knowledge that a DOV in favour of someone who was not a beneficiary of the trust was intended.