At our recent team meeting we were considering the question below which has arisen and have conflicting views. Does anyone have a view please?
If a property is left on a life interest trust to a qualifying lineal descendant on death of life tenant, will the rnrb still be available on the second death if the lineal descendant remainderman predecessors the life tenant (and the remainderman’s estate passes to non lineal descendants)?
My understanding is that upon the second death, you will look at the relationship between the life tenant and those then entitled, and not the relationship between the testator and those then entitled. Accordingly, if those entitled upon the death of the life tenant are not within the qualifying categories relative to the life tenant, RNRB will not be available on the death of the life tenant. I believe this is the case even should the eventual beneficiaries’ entitlement be through the estate of a deceased remainderman who would otherwise have been within the qualifying categories had they survived the life tenant.
Paul Saunders
Although I am sure the intention was as Paul says, on a strict reading of the Act it does appear that the contrary could be argued, and I raised this point with HMRC last year. I have heard nothing and will chase
them up.
Simon Northcott
Section 8J sub- sections (4) (a) & (5) IHTA 1984 are relevant. I raised an RNR question with this forum and with HMRC in December 2016. HMRC’s response in January 2017 was as follows:
“The new RNRB of up to £175,000 will apply if a home is included in a person’s estate, it is inherited by their direct descendants on death, and the other qualifying conditions are met. Where the home, or share of it, is held in a trust, the availability of the RNRB will depend on the type of trust as this will affect whether the property is treated as being part of a person’s estate for IHT purposes, and whether it is treated as being inherited by that person’s direct descendants. If a home is held in a trust before a person’s death which gives that person (the beneficiary) the right to use or occupy the property, the home is usually treated as part of that person’s estate for IHT purposes. This commonly occurs when a surviving spouse or civil partner is given an interest in possession in the family home following the death of their spouse or civil partner and the home is held in a trust for the lifetime of the survivor (a life interest). Provided the home is inherited by their direct descendants when the surviving spouse or civil partner (the life tenant) dies, their estate would be eligible for the RNRB.” This confirms Paul’s opinion and my interpretation of the Act.
Gillian McClenahan
Willplantax
On a related note, if H dies leaving the whole property on life interests trusts for W, (with a pecuniary legacy of say £100,000 to a child), and gift over on discretionary trusts, is the RNRB lost, even if the trustees appoint a share of the property to children within two years of W’s death?
Would it make any difference if H’s Will was varied to create the life interest trust, whereas it included a gift of residue to children pre-variation?
Haroon Rashid
I Will Solicitors Ltd
We have a situation where H leaves house to W on IIP Trust, W doesn’t own any of the property. Will her IIP mean that her estate can claim the RNRB on her share (which passes to H’s children i.e. her step-children). Would both RNRB be available?
Thank you
Lee Hibell
Paul Robinson Solicitors LLP
Provided that W occupies the house as her residence, I see no immediate reason RNRB should be denied in respect of the step-children’s interest in remainder (provided they inherit absolutely)
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I’ve copied some text from an email I received from HMRC in January 2017.
"If a home is held in a trust before a person’s death which gives that person (the beneficiary) the right to use or occupy the property, the home is usually treated as part of that person’s estate for IHT purposes. This commonly occurs when a surviving spouse or civil partner is given an interest in possession in the family home following the death of their spouse or civil partner and the home is held in a trust for the lifetime of the survivor (a life interest). Provided the home is inherited by their direct descendants when the surviving spouse or civil partner (the life tenant) dies, their estate would be eligible for the RNRB. "
IHTA 1984 Section 8J(5) confirms the above & 8K (3) confirms position regarding life tenant’s step child. See also IHTM46013. A full uplifted RNRB should apply, subject to value of dwelling at life tenant’s death & any tapering applicable if life tenant’s estate >£2m.
Gillian McClenahan
Willplantax
Step-children are included as lineal descendants. Hence, on W’s death her estate is able to take advantage of her own RNRB plus that of H’s which was used on H’s death.
Malcolm Finney