Discretionary Trust appointment to exempt & non-exempt beneficiaries and IHT treatment

Trusts Discussion
1

A Will provides for a discretionary trust to be created for the whole estate. IHT 400 was submitted 3 months after death claiming reduced 36% IHT as Executors/Trustees (same people) wanted to appoint 25% to charities in accordance with deceased’s wishes. IHT was paid at the same time. Deeds of Appointment were not signed until 19 months later but did appoint 25% to charities. HMRC were extremely slow in processing and it was several months after the appointments before HMRC confirmed that although they would allow the reduced IHT rate as a result of the appointments, for other reasons more IHT was payable. The extra IHT was subsequently paid. I have been informed that as the additional IHT was paid AFTER the appointments (which state they are effective from the date of signature) the IHT will be treated as being paid from monies appointed to the non-exempt beneficiaries. That being the case, does this mean that IHT paid BEFORE the appointments was simply paid by the estate (nothing was vested in the Trustees) with no Benham Ratcliffe implications, ie that the non-exempt beneficiaries will not be treated as having to pay all the IHT?

Geraldine Craig
Tanners Solicitors LLP

2

Dear Geraldine
I have just embarked on a matter which is likely to be similar to this and am interested in your experience. Will HMRC approve an IHT calculation based on the trustees intended appointments to charity? If so, on the offchance that there is further tax to pay, and relating to the Benham Ratcliffe question in your post, would it be better to have finalised and paid the IHT before any deeds of appointment are signed?
Thanks
Lorraine Burkey

3

Dear Lorraine

HMRC were not interested in intended appointments – I was only able to claim charity exemption and reduced IHT @ 36% once HMRC had sight of certified copies of the deeds of appointment to charities (within 2 years of the date of death).

Kind regards.

Geraldine