We have a case where a lady set up a FPT in 2010, transferring her home to the Trustees. The terms of the FPT provided her with a life interest in possession and, on her death, the FPT became a discretionary trust for the benefit of her family. We are being asked to terminate the FPT following the recent death of the Settlor and to comment on the taxation issues arising. I hope I am overthinking the position and would be grateful for comments from the Forum.
The original gift would have been a chargeable transfer into a RPT but also a GROB. Would the GROB have cancelled out the CLT?
In 2020, there would have been a 10-year anniversary charge. Again would the GROB have cancelled out the TYA charge?
On the death of the Settlor, the GROB was released but its value will be chargeable within her estate. Does this affect the IHT charging within the FPT?
On the termination of the FPT, there will be an exit charge at current value but based on the effective rate on the TYA. How does the GROB affect that?
My understanding is that the GROB doesn’t stop or reduce the trust charges.
Here is a link to HMRC Manual which seems to confirm the situation.
So in answer to your specific questions:
No, but with the FPT I have seen recently they don’t usually put a property of more than the NRB into the trusts, also some of them (but they are generally more recent than 2010) do state any value over the NRB is held on a bare trust, so might be worth checking this.
No, the GROB won’t cancel the TYA charge.
Sort of, I understand that the IHT on the failed gift would be a trust liability, this would therefore reduce the value of the trust, which in turn would affect the exit charge.
I don’t think that the GROB would influence the exit charge, apart from reduction due to the payment of any IHT on the failed gift.
You might need to consider CGT, as the deceased lived in the property you should be able to claim Private Residence Relief for the period of their occupation, but this will need to be claimed and is not automatic.
