EEquitable Charge, indexation and possible waiver

Trusts Discussion
1

I have come across a NRBDT. Estate passed to spouse in return for Equitable Charge (for the full nil rate band) that was index linked with reference to RPI.

The 10 year anniversary was in 2016. Nothing has been done. My queries are: -

  1. Would there have been a charge to IHT in 2016 based on the original charge plus indexation in line or is the indexation now treated as “interest” on repayment of the charge?

  2. If the Trustees decide to waive the ongoing indexation, presumably that is only effective from the date the Trustees record / document that decision and is not retrospective?

Thanks in advance

2
  1. I don’t know if there is a settled position but believe HMRC still take the view that the indexation should be treated as interest. However, the uplift would still be an asset for IHT - irrespective of whether it is an indexation of the capital debt or accrued income.
  2. No, I don’t see how you could waive it retrospectively.
    Andrew Goodman
    Osborne Clarke LLP
3

Justin, I believe alternative views to Andrew’s have been expressed on this forum in the past, certainly in relation to the IHT position and the indexed uplift. You might like to look at this thread, which I started back in 2017: https://trustsdiscussionforum.co.uk/t/waiver-of-indexed-increase-in-debt-transfer-of-value/4947. I don’t think anything material has changed since then.

As regards the ability to waive the indexed increase retrospectively, I suppose it may depend on the wording of the loan, as to when the increase becomes due. A fairly typical wording requires payment “on demand” of a sum equal to the greater of the original debt, and an amount calculated by reference to RPI. As the requirement to pay does not arise until demanded (and can usually be waived under the terms of the Will), and as the indexed amount cannot be calculated until the payment is made, it seems to me that the liability for the increased amount does not arise until demanded, and can therefore be waived at any time until then. It does not amount to a retrospective waiver.