There are a number of solicitor practices promoting asset protection trusts and claiming that RNRB will still be available.
They are generally all settlor interested IIP trusts , income payable to settlor for life. It is accepted that they are GROBs.
In an attempt to preserve the RNRB I have seen a number of different courses of action stipulated on the death of the Settlor so that sufficient assets pass to a linear descendant, ranging from a simple gift over to linear descendant to much more complex arrangements.
It appears to me however that the initial GROB is to the Trustees of the settlement and will automatically fall foul of s8j(6) regardless of the subsequent gifts to lineal descendants.
Have they overlooked this or am I missing something ?
Although a residence subject to a GROB is considered to be within the estate and capable of being a Qualifying Residential Interest, it only qualifies as āinheritedā if the lifetime disposal was made to lineal descendants (not to trustees) (s.8J(6)(b)).
The Downsizing Provisions might have saved the situation but they would not apply in relation to the property transferred to the trustees since the rules require that the deceased have a āqualifying former residential interestā. This is defined in s.8H and requires the deceased to have disposed of a residential property interest, but s.8H(4D(a) states that:
āa person is to be treated as not disposing of a residential property interest in a dwelling-house where the person disposes of an interest in the dwelling-house by way of gift and the interest is, in relation to the gift and the donor, property subject to a reservation within the meaning of section 102 of the Finance Act 1986) (gifts with reservation)ā
Iām not aware of the details of any promotion of asset protection trusts but am struggling to see how the RNRB may be in point.
There is clearly a GWR but on the settlorās death the person inheriting under the trust will not be the same person to whom the original gift was made as required under s8J(6). Hence, no RNRB.
You are missing nothing - I administered an estate last year which had one of these trusts within it as a GWR. My view was RNRB would not be available, but I provisionally claimed RNRB at the executors request and tried various arguments with HMRC who rejected the lot.
Interestingly I declared the CLT value rather than the GWR value (disclosing in the additional info on page 15 that the CLT was also a GWR which would have a higher value). HMRC accepted the CLT value, so we did save a little IHT that way.
Was this not an oversight on the part of HMRC given (as I. understand it) under SI 1987/1130 the greater of the two IHT amounts is payable ie HMRC have no discretion to choose between the two calculated values?
Also wrt the IHT on the CLT due to death if paid by the PRs such IHT wouldnāt be covered by the s 211 indemnity which would be the case had the IHT paid been in respect of the GWR?
Well I certainly havenāt read that, so you might be right! The only piece of commentary I could find at the time (which I sadly have been unable to find since although it was somewhere on Kesslerās website) stated that where there are 2 possible ways to calculate IHT as a result of a CLT being a GWR, HMRC will provide 2 calculations and have discretion as to which theyāll ask to be settled. It was on that basis I submitted the CLT valuation but with full disclosure that the GWR value was higher.
I am late to this thread but I have read all your comments with interest as i am instructed in an estate where the deceased was advised to settle her whole property into a āFamily Protection Trustā in 2018 at the age of 89.
She was a beneficiary of this trust, with a right to income and on death the children (as far as i can tell) are discretionary beneficiaries.
She did not pay any rent and continued to reside at the property. She passed away late 2020.
The solicitors who prepared the Trust Deed have confirmed (after i reviewed the documentation / raised concerns with them) āthat all our Trusts are GROBā, which means as far as i am concerned the whole value of the property at death is included in the estate.
Furthermore the NRB has nearly been exhausted making lifetime cash gifts in the 7 years before death.
The TNRB is available but the estate is taxable if we cannot claim the RNRB and the TRNRB.
I am at loss as to why she was advised to do this by a firm of solicitors who hold themselves out to be Trust and Probate experts and before i let the Executor know about this huge potential tax liability, i wanted to make sure i am not missing anything.
Joanna, I donāt think you are missing anything and I donāt think either a RNRB or TRNRB is available.
The gift into trust in lifetime of the residence gives rise to a GWR (the iip is not a qualifying iip; in the case of a qualifying interest in possession under s49 on death the underlying property would form part of the qiipās estate and the GWR provisions would not apply [FA 1986 s102(3)]). As a consequence of the GWR, on death, the interest in the residence is part of the deceasedās estate but a lineal descendant does not inherit (s8K) and hence no RNRB is available.
Furthermore, no TRNRB is available. A claim to a TRNRB is in principle possible irrespective of whether the surviving spouse leaves a qualifying residential interest to lineal descendants (or whether a qualifying residential interest is owned at the date of her death).
However, the surviving spouseās RNRB will be nil if there is no qualifying residential interest (or downsizing addition) which is closely inherited on the spouseās death. In which case, the enhanced RNRB (ie the spouseās own RNRB plus the transferred RNRB) is of no value/use.
Do the downsizing provisions help? It would seem not because of the need for a disposal of a qualifying former residential property interest which, because of the GWR, does not occur under s.8H(4D)(a).
I seem to be seeing more and more of this āplanningā as a means to avoid care fees but without thought for the consequences from an IHT perspective.
Good analysis above. I think many of these trust may have been settled before the advent of the RNRB/TRNRB.
Can I ask on this basis: Mr & Mrs settle home into trust. (2008) Accepted itās GWR ā No IHT benefit. Estate valued on settlement was Ā£500,000 IHT is covered by spousal exemption first death then NRB/TNRB.
(2021) Estate value is Ā£1 million. As the above comments the RNRB would be lost.
My question is: Ignoring 10 year and exit charges., for a moment - if the trust is unwound, the property transferred back to Mr & Mrs - is the RNRB/TRNRB now available?
If H/W settle their home on trust under which they each have an interest in possession (IIPs), as a lifetime created trust the IIPs are non-qualifying. The gifts, on settlement, constitute GWRs.
If the trustees have the requisite powers to appoint the residence back out to H/W so H/W again have ownership of the residence I can see no reason H/W wouldnāt each be entitled to the RNRB/TRNRB on their respective later deaths (assuming the property again becomes their residence).
If the āasset protection trustā was created pre-2008 and is an (old fashioned) interest in possession trust on the part of the donor, I presume those material facts do not change the analysis given above - that essentially the RNRB does not apply as the inter vivos transfer was made to trustees?
Sorry for the delay thank you all for the comments. I just picked these up having not seen the notification.
Malcolm thank you for the detailed response.
Lyndzey - the Executor (daughter) told me that her mother was informed that this planning may help avoid care home fees if she lived 4 years plus! She was nearly 90 at the time of the planning.
It is a real shame as the estate is taxable without the RNRB and TRNRB.
The family are awaiting a copy of the advice the mother received.