Application of Nil Rate Band to one legacy in priority to another legacy (legacies otherwise to bear own tax)

Trusts Discussion
1

I have a wealthy client with a complicated personal life. He is essentially wanting a Will for the time being/short term.

He is married but cohabiting with a third party in a property they own as tenants in common.

There are adult children from the marriage.

He wants to leave a significant gift to the partner and a significant gift to the children (residue to wife).

He wishes the gifts to taxable beneficiaries to bear their own IHT. However, he wishes the benefit of any Nil Rate Band to be applied to the gift to the partner first and in priority to the gift to the children. It is this that I am struggling to draft and wonder if any other forum members can suggest any resources/pointers at precedents? I am minded to direct that the gifts are subject to their own IHT but that the gift to partner shall have the benefit of the Nil Rate Amount (defined) in priority to the gift to children.

The testator does not want to employ discretionary trusts as he is not happy with his trustee options. I am mindful that I cannot assume the goodwill of the beneficiaries to each other so wish clarity to be paramount.

Any feedback or suggestions would be much appreciated.

Jane Huntley
Chadwick’s, Leyland

2

Could you include a free of tax gift of the nil rate band to the partner, with the balance of her gift then subject to tax?

Diana Smart
Gordons LLP

3

…or perhaps something like:-

‘I give £x free of tax to [partner] PROVIDED THAT if the gift under this clause exceeds the Nil Rate Sum [best defined in case the wife dies first and he has some unused NRB to transfer] then this gift will be subject to tax in respect of the amount that it exceeds the Nil Rate Sum.’

The gift to the children can simply be ‘subject to tax’, which should cover all eventualities.

Richard Whitaker
CP Law Solicitors

4

It may be worth considering this as equivalent to leaving a specific bequest such that after tax, it amounts to the Nil Rate Band. This would make it a Re Benham versus a Re Ratcliffe issue. There are no charities involved but the issues seem similar.

I am not a lawyer but that would seem to offer an alternative basis for researching a precedent.

Ian McKeever

Ian McKeever & Co Consulting Actuaries