Property Nil Rate Band lost?

Trusts Discussion
1

I am hoping that someone might be able to advise me on the following situation.

Husband (H) and wife (W) owned their property as tenants in common and made mirror Wills in 2014.

H died in 2017 and his Will gives W a life interest in his share of the property, with the residue passing to her absolutely. The Will goes on to state that, following W’s death, his share of the property is to be held on discretionary trusts for his two sons and remoter issue, with no power to add any other beneficiaries. From what W has said, I’m not convinced that is what he (or W in her Will) intended, but it’s definitely the effect of the 2014 Wills and W subsequently made a new Will leaving everything, including her share of the property, to her two sons absolutely.

My view is that on W’s death, her Estate will have the double NRB (because the residue of H’s Estate passed to her absolutely) plus her own Property NRB (because she is leaving her share of the property direct to her sons). However, I believe that H’s Property NRB has been lost because his share, on W’s death, goes into the discretionary trust, rather than direct to his descendants, and we are beyond the two year limit for a Deed of Variation or Appointment.

Do forum members agree, or am I missing something? If I am correct, any suggestions as to how to recover H’s PRNB will be gratefully received because it is likely that W’s Estate will exceed the allowances otherwise available.

David Price
David Price & Co

2

As what passes into the discretionary trust is the interest in remainder following a life interest, it is currently excluded property for IHT purposes. Accordingly, if during the existence of the widow’s interest in possession, the trustees appointed out to qualifying beneficiaries the interest expectant upon the widow’s death I believe this should overcome the issue and “restore” the availability of the late husband’s RNRB without any IHT or CGT issues arising at this time.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

3

I agree with Paul re the IHT and CGT aspects.

The assignment of the reversionary interest will not precipitate any IHT charge as it is excluded property [IHTA 1984 s 47] and no CGT charge [TCGA 1992 s 76(1).

Malcolm Finney

4

Many thanks, Paul and Malcolm. That’s very helpful and my client will be delighted!

David Price
David Price & Co.