Appointment out of trust within 2 years for s144 IHTA 1984

Trusts Discussion
1

I am dealing with an estate where the residue is to be held on the terms of a discretionary trust since the deceased’s husband pre-deceased her. The deceased’s only daughter and grandson are included in the class of beneficiaries, the Will having been constructed in this way because daughter was in the midst of a divorce at the time the Wills were made. The residue includes the deceased’s half share in her home. The deceased had a life interest in her late husband’s half share in the home under the terms of his Will and then husband’s half share in the home is to be held on the terms of a discretionary trust in his Will. Husband died more than 2 years ago.

Daughter and son have been living at her parents’ home and daughter’s divorce is now finalised. Daughter does not own any property in her own name at present. Daughter has decided that she wishes to move from her parents’ home to another property owned solely by the deceased (this property is also part of the residue of the deceased’s estate to be held on the terms of the discretionary trust). Daughter then wants her parents’ home to be sold.

We are approaching the second anniversary of the deceased’s death and wish to make an appointment under s144 IHTA 1984 of at least the deceased’s half share in the home to daughter in order to be able to utilise the deceased’s residence nil rate band. I am tying myself in knots regarding husband’s half share in the home and whether there is anything we can do in order to be able to utilise his residence nil rate band?

Parents’ home has increased in value since the date of the deceased’s death and so we also wish to appoint the whole of this property to daughter so that she can sell it with the benefit of PPR relief. Once the property has been appointed to her (presumably half from deceased’s discretionary trust and half from husband’s discretionary trust) would the Land Registry title for the property have to be transferred to daughter’s name before it can be sold with the benefit of PPR relief? Also, can daughter move to the other property (and perhaps have that appointed to her depending on how the IHT figures work) as soon as parents’ home has been appointed to her or is this likely to cause problems for the purposes of PPR relief?

2

I’ll have a stab at this.

As regards the husband’s RNRB, this will have been transferred to the spouse such that if the wife’s half-share of the home were equal to at least twice the RNRB (i.e. £350k) then, if the appointment under the wife’s discretionary Will trust were to create IPDIs for the lineal descendants or absolute interests, then both the wife’s and the husband’s RNRBs would be utilised. If however her half-share were insufficient then all or a portion of the husband’s RNRB will be lost because the spouse’s life interest under the husband’s Will trust did not end with absolute interests to lineal descendants and s.144 is no longer available. It is also worth mentioning that any appointment out of the husband’s Will trust will trigger an exit charge because more than three months have elapsed since the ending of the wife’s life interest.

The daughter’s occupation of the parents’ home should enable the trustees of the husband’s Will Trust to claim PPR against any increase in value of its share of that property because the daughter is a beneficiary of that trust. If the appointment under the wife’s Will trust creates an IPDI for the daughter then the trustees of that trust should again be able to claim PPR against their share. If the appointment under the wife’s Will trust is absolute in favour of the daughter, then the daughter should be able to claim PPR personally against that portion. There would be no need for legal title to be transferred to her, the appointment of the beneficial interest to her absolutely would be sufficient.

PPR would be available for a further 9 months following the daughter vacating the property.

Paul Storrie
Storrie and Company

3

Many thanks Paul, I appreciate your input.

Lisa