Claiming RNRB and TNRB and TNRB on termination of a life interest

We act for the trustees of a life interest trust whereby the life tenant (the deceased) has died (in January this year).

The deceased’s free estate is being wound up by her daughter and she is withholding information from us, such as we have had to submit the IHT 100 without any information whatsoever as to the value of the free estate, despite repeated requests for the same. The deceased was the life tenant of her late husband’s will trust and the trust fund was valued at the date of death at approx. £1milliion and included a property in which she was living valued at £500,000

We are unaware of whether or not the NRB, RNRB or any transferable NRBs have been claimed on her free estate by her executor who has provided us with no information except to say she did not think it had to go to probate. She does not seem to grasp that the free estate and the trust are related despite having been told this on many occasions. I am inclined to think she has done nothing except close the accounts and distribute according to the will which we have not seen as there was money owed to the trust of a loan made by them many years ago repayable on her death, as well as outstanding fees etc. due to ourselves!

In the circumstances, are we able to claim these tax free exemptions as acting for the trustees on behalf of the life interest created of his whole estate by the deceased’s late husband? If so, how do we go about this?

Further we are now in a situation (due to the crazy property market) whereby the death valuation was £500,000 and a sale has now been agreed at over £658,000! This is either going to be subject to CGT (at 28%) or an increased charge to IHT (at 40% on the increase in value). However, as the estate on the death valuation was close to £1m it seems to me that it is better to pay the CGT (at the lower rate than any IHT if we were to have the sale figure substituted for the date of termination of life interest valuation)

Does that sound right?

Please can someone help!

May thanks as always for the collective wisdom of this forum

Lis

Lis Whybrow

WhatleyRecordon

Solicitors

12 Worcester Road

Malvern

Worcestershire WR14 4QU

Tel: 01684 892939

Fax: 01684 892327

As the executor is not applying for probate, it is unlikely she will have submitted an IHT400, and therefore more unlikely she will have claimed any residence nil rate band, or transferable NRB or brought forward RNRB to which the deceased’s estate may have been entitled from the late husband. I see no reason why these cannot be claimed by the trustees, provided the circumstances for a valid RNRB claim exist. I suggest the claims be submitted with a letter explaining the circumstances.

On the basis that the trust fund is now absolutely distributable, the trustees hold as bare trustee for both income tax and CGT purposes, so that it is the beneficiaries who will submit details of any gain to HMRC, paying the CGT at the rate applicable to their personal circumstances.

The trustees will need to consider what they should do about the unpaid loan and trust expenses, especially if those entitled to the trust fund, and the proportions of their entitlements, differ from those under the will. As they have not seen the will, they probably need to proceed on the basis that if they do not pursue recovery from the executor, they may be personally liable to restore the value of the trust fund. If the executor is also a beneficiary of the trust fund, those assets of the trust might be appropriated to her in part satisfaction of such entitlement. Provocative – yes – but might encourage her to enter into a dialogue with the trustees to enable matters to be taken forward appropriately.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

If the IPDI was in favour of the deceased’s spouse, then on the death of the spouse an RNRB is available assuming that under the terms of the trust the property passes to a lineal descendant of the spouse.

With respect to the brought-forward RNRB (if any) a claim must be lodged [IHTA 1984 s8L and 8G(3)], usually by the deceased’s executors on Form IHT 436. However, if the executors make no such claim the trustees of the IPDI may make such a claim as they are liable to IHT on the deceased’s death [IHTA 1984 ss 8L and 200(1)(b)].

IHT 435 would also need to be completed.

The termination of the IPDI gives rise to a deemed disposal and reacquisition by the trustees but with no actual CGT charge arising. The trustees then hold as bare trustees. Any subsequent disposal will be made by the bare trustees but on behalf of the remainderman and CGT payable at the individual CGT rate applicable to that person.

Malcolm Finney