CLT and Life Interest trust

Trusts Discussion
1

I have been asked to set up a life interest trust (IIP) of a property (lived in by settlor) so that the settlor has right to live there for life but then passes to his children. The value of the property is over the NRB for IHT.

I am unclear though with this being a CLT whether he would have to pay IHT on entry to the trust at 20% over NRB. I assume that the property will remain in his estate for IHT as a GROB (as he has right to live there/have income for life) so no loss to his estate as such. So I am not sure whether he would have to pay the entry charge for IHT.

CGT wise shouldn’t cause an issue as he has lived in it since purchase and will have the right to continue to do so so PPR should continue to be available whilst he’s living there.

Cant seem to find the answer with it being a settlor interested trust and remaining in his estate for IHT.

Thanks for any help that you can give me to point me in the right direction.

2

Yes. CLT with tax payable on excess over NRB taxed at non-refundable 20%. Also a GROB, so double charge regulations may apply if he dies within 7 years and the GROB remains chargeable or coincides with a s102(4) PET, if it ends, which will have its usual separate consequences if it stands under the regulations. RPT chargeable events will apply and no cover from double charge regulations.

Self-interested for CGT but PPRR will neutralise unless part of gain chargeable, when there could be hold-over on a later trustees’ disposal but no wash-out of gain on death of NQIIP owner. Any held-over gain would not attract PPRR on the next subsequent disposal: s226A TCGA.

Jack Harper

1 Like
3

Thank you…had a feeling that was the case when I struggled to find an exemption.