Our client wants to settle a buy to let property into a settlor excluded trust for the purposes of IHT planning. The current value of the property is right on the £325,000 limit for entry charge purposes. Is there a way of wording a declaration of trust so that the settlor only transfers up to the maximum value of her beneficial interest so as not to trigger lifetime IHT charges?
Does the settlor have their 2022/23 and 2021/2022 annual IHT allowances still available? If so, these can reduce the value of the transfer for IHT purposes. If both are available, the propryy value could be £331,000 and there would be no entry charge.
I would be reluctant to suggest any formula for ascertaining the maximum proportion of the property to be within the available IHT nil rate band. In most formula, there is no base line value for use to identify how much of the property is retained by the settlor and, therefore, the proportion of ret to which they are entitled, or the extent of their liability to the costs of maintenance, etc. Of course, the settlor could allow all of the rent to be paid to the trustees, and pay a larger share of the expenses than might otherwise be due. But there would still be no certainty as to what proportion of the property they retained.
I suggest the most efficient way forward might be to obtain a Red Book valuation and rely upon that and the availability of any available annual IHT allowance(s) to either keep the transfer of value within the available NRB, or to minimise any potential entry charge.
Paul Saunders FCIB TEP
Independent Trust Consultant
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