I have an estate where the free estate passes to the surviving spouse. There are a couple of interest in possession trusts (pre-2006) which aggregate with the free estate and take the value of the taxable estate over the deceased’s available nil rate band. The remaindermen of the trusts are the children of the deceased. I understand the trustees are primarily liable for the tax related to the trusts. My question is whether there is any apportionment of IHT between the trusts and free estate. My understanding is that because the estate passes to the spouse the trusts bear all the IHT, but I cannot find any source material to back this up. I am just wondering if anyone has come across this issue before.
The IHT is apportioned between the taxable titles only.
As the free estate passes wholly to an exempt beneficiary, it bears no part of the IHT.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
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Once the IHT estate rate is ascertained it is then applied only to the free estate if such estate is liable to IHT which isn’t the case here as the estate is left to the surviving spouse. This rate will be applied to the two trusts to determine their respective IHT liability payable by the trustees [IHTA 1984 s201].
Malcolm Finney
Thanks Malcolm and Paul for your help with this.