Husband and wife both have several business structures. A limited company (in which they both have shares) and a partnership plus land used by both the company and partnership. They have children. They want wills. The combined value of all business assets and personal assets is about £1.5 million so BPR would be useful.
Option 1 is to give personal chattels to the survivor and leave the residue on discretionary trusts. The idea being to appoint residence nil rate band and business assets to children within two years of the first death if that is prudent to take advantage of RNRB and business property relief.
Option 2 is to give personal chattels to survivor, life interest in entire residue including business assets to surviving spouse, residence nil rate band to children on death of survivor; subject to overriding powers. Use the overriding powers within two years of the first death to appoint RNRB and business assets to the children if prudent
Option 1 is recommended in the book I am using (Kessler Drafting Trusts and Will Trusts) Option 2 is not mentioned for securing business property relief. I am wondering if option 2 is not mentioned and fails because the surviving spouse has an IPDI and that any appointment would not be effective to capture business property relief?
Does anyone know?
S.144 Ihta will not apply in the second example to capture bpr or the rnrb as there is an IPDI. This is why you must use a discretionary trust
Simon Northcott
You could also do a hybrid could you not? a DT of the qualifying BPR assets and the Residue on an IPDI?
Need to keep the BPR assets out of the hands of the Spouse to maximise any potential BPR - else it could be lost because Spouse Exemption would trump the BPR allowance.
The idea of the DT of business assets hopefully qualifying for BPR is to cover off the possibility that on death no BPR in fact applies. IHTA 1984 s144 then permits the assets to be appointed out (within two years of death) without IHT charge to the spouse so inter-spouse relief then applies.
If the business assets were settled on an IPDI trust the above would not be possible.
Malcolm Finney
Thanks Simon. Just to clarify. Is it this: A section 144 appointment within two years of death to appoint business assets to non - exempt beneficiaries is ineffective because the appointment must be “before any interest in possession” has subsisted and section 91 IHTA 1984 applies so that the surviving spouse’s entitlement to income (even if subject to Overriding Powers) arises forthwith upon the death of the testator? Thus any appointment using the Overriding Powers is simply too late (as it is after the deemed s 91 interest in possession has subsisted)?
Correct. You have it in one Vincent!
Thank you Simon. Much appreciated.
Yes, you cannot use s144 if a life interest is in existence first, but if you do come across a Will where a life interest has already vested in adults on the first death (both life tenant and remainderman are adults vested being as those alive at date of the testator’s death) they can do a s142 Deed of Variation to be read back for IHT purposes.
Thanks Maria. That’s very helpful