I’m new to this site, it’s like a goldmine of information!
I have done so much reading and cannot seem to find an answer to a particular situation.
I have a NRBDT. Property was transferred to surviving wife subject to an equitable charge of £220,000 subject to index linking in accordance with RPI in favour of the Trustees, Standard stuff. There is power for the Trustees to waive interest/repayment.
It is more beneficial to my trustees and beneficiaries (all the same people) to simply waive the index linking and avoid paying 45% income tax (amounts to £46,000) and take the hit of the slightly higher inheritance tax (£34,000). I accept that in deducting the liability from wife’s estate i can only deduct the original equitable charge NOT the index linking due to IHTA s 175a. By reason of not claiming the index-linking i am pushing the wife’s estate into being taxable to IHT, but as i say, ultimately there is a saving to be had. (i shall do some investigations into whether the beneficiaries are basic rate tax payers and this may have an impact).
My concern is that i do not want to inadvertently get caught by the IHTA s175 (2)(b) which talks of securing a tax advantage. Example 1 on HMRC manual relating to Liabilities: restricted deductions etc is not clear.
In short, can i simply advise the trustees to waive index linking and thereby deduct only the loan from wife’s estate and pay IHT accordingly. Avoid income tax altogether.
Grateful for the assistance.