NRB & Trust in Will


(Sally-Ann Joseph) #1

I have a Will which has the following:

Property on LIT for wife.
NRB discretionary trust, with debt/charge provisions
Residue is then held on trust for the following:

  1. Annual sum of £1200 to the deceased’s father, index linked
  2. Income for wife during her life

Father survived the deceased and wife had been paying him the money and more, the extra will therefore be PETS for wife unless within annual exemption. Therefore only on the fathers death (he has now died) can the available nil rate sum be calculated. However, there is clause saying that the trustees may waive the payment of the whole or any part of the Nil Rate Sum, if the trustees waived payment of the Nil rate Sum then would the transferable NRB be available, less the amounts paid to the dad?

Sally-Ann Joseph

Rose & Rose


(Paul Saunders) #2

I am not sure that, for inheritance tax purposes and to facilitate the general administration of the estate, the father’s entitlement would be calculated by reference to the actual sums paid to him.

From what has been aid, it seems to me that the father was effectively left an annuity, payable out of the residuary income. If so then the value of his entitlement as at the date of death of the testator would the cost of purchasing an annuity matching the terms of the gift to him. There would then be certainty as to both the value of the gift as at the date of death, and the value of the NRB legacy. Leaving calculation of the NRB gift until after the father’s death would keep the beneficiaries of that gift out of their entitlement for an unknown (and unreasonable) period.

As regards the question posed, I suggest that if the forgiveness takes place more than 2 years after the testator’s death, his NRB will not be recoverable. Whether s.144 IHTA 1984 would apply if the debt is forgiven within 2 years of death is, perhaps, a moot point, but I suggest is arguable.

Paul Saunders


(Graeme Lindop) #3

You do not say when your deceased died and the state of play in the administration of his estate. However, the main issue seems to me to be the interpretation of the nature of the gift to the father. I think this may be an annuity. I assume the Will does not contain any instructions on how this is to be set up nor any administration powers.

One way of establishing the “annuity fund” would have been to purchase sufficient a suitable government index-linked stock to produce the initial annual sum. The cost of the purchase then reduces the amount of the NRB legacy. On father’s death, the value of the annuity fund then aggregates with his estate for IHT and falls back into residue.

If the NRB legacy is waived, then I think the calculation of the TNRB would still require a valuation of the father’s “annuity fund” rather than just the deduction of the sums paid to him by the Trustees.

Graeme Lindop
Coles Miller Solicitors LLP