Residence nil rate band - existing trust - death of life tenant

(Heather Cunningham) #1

I am advising the family of a lady who is a life interest beneficiary of her late husband’s will trust. The trust assets include the main residence in which she resides. Her husband died in 2002 and the property, owned by him passed in to the trust at that time.
The lady’s late husband was her second marriage. Both parties had children from their first marriage. There were no children from their own marriage. The purpose of the trust was to ensure that although my client had a life interest, but that on her death the property passes to the husband’s direct descendants.
I think I am right is saying that when her life interest ceases on her death, there will be IHT to calculate on the trust and on her own personal estate and the nil rate band will be apportioned between the two. But the question is whether any residence nil rate band will be available. Although I think it may apply, what is concerning me is the fact that the individuals to whom the property passes from the trust are the descendants of the husband who died 15 years ago.
I would be very grateful for views on the position.
Just as a further complication, during the trust’s existence the original residence was sold and a replacement residence acquired, although I do not think this should have any relevance.

Heather Cunningham
Harold Sharp Limited

(stuart.adams) #2

All other conditions to one side and assuming that on the wife’s death the property is left absolutely to husband’s children from his first marriage, the RNRB will apply because the term ‘children’ within the definition of ‘direct descendants’ includes step-children. The wife’s estate will, subject to any taper restrictions etc., benefit from a RNRB and a full transferable RNRB on her death. Should the wife die on or after 6 April 2020, this could amount to £350,000.

Stuart Adams
Mishcon de Reya