I raised a related query in April 2016, under the heading ‘Residence Nil Rate Band NRBDTs & equitable chargeshttp://trustsdiscussionforum.co.uk/t/residence-nil-rate-band-nrbdts-equitable-charges/1961’. The only response I received was from Simon Northcott which for convenience I have copied below:
“If there was a NRB trust on the first death, there is presumably no TNRB available on the second death in respect of that spouse. The RNRB will not have been used on the first death, so is transferable. If the surviving spouse has a half share of the house, then if her share is worth at least £350,000 she will be able to use her RNRB and the TRNRB. If she has downsized those provisions may help.
Otherwise, a release of the charge may be an answer, if the trustees have the power to accept an unsecured iou, and provided Phizackerley is not a problem, or the charge could perhaps be secured against other assets owned by the surviving spouse.”
I too was concerned about SDLT but am not sure now and I would be very glad to hear others’ views.
Under an equitable charge the widow was not (normally) personally liable for the payment of the debt. She would simply own the whole property subject to the charge, which the executors imposed before transferring the deceased’s interest in the property to her.
If the widow gives the Trustees an IOU in exchange for the release of the equitable charge, is that transaction subject to SDLT? I don’t see why it should be because she is not acquiring an interest in land in consideration for the IOU – she already owns the property. No SDLT is payable if you repay your mortgage and this looks similar to me.
So that might be the solution for trusts where this is a problem, although as Simon says, it may be that the widow’s interest in the property subject to the charge is sufficient to use the whole of the RNRB and TRNRB anyway.
Another point I wondered about in relation to this is that if you swap the equitable charge for an IOU do you trigger the payment of indexation or interest under the equitable charge? Notwithstanding James Kessler’s view that no tax is payable on the index-linked increase we know that HMRC think differently and do you really want to have that argument now? Could the indexed increase and/or interest charge be deferred and transferred to the IOU? Again, I don’t see why not, but would be interest to hear what others think.
Diana Smart
Gordons LLP