IHT on Discretionary Trust set up in 2010

Trusts Discussion
1

Client F set up a discretionary family trust in 2010 and put her main residence in it and some bonds. Her daughter and long term partner T of 50 years are the beneficiaries. Trust assests have doubled in value since 2010 and F has not drawn an income from the bonds. Nothing has been added or taken out of the trust at any point - its lay dormant.

But F has continued to live in the house with T without paying rent to the Trust. So:
(1) is the house free from IHT? If it is considered a successful immediate chargeable transfer then hopefully it should n’t
(2) the RNRB is lost as the residence is in Trust but can it be regained via transfer to the daughter on the death of F?

The Trust company is no longer trading but like many others it was set-up via a leading Building Society without any regards to IHT advice. The Trust company did not conduct any periodic reviews, pay tax or advise on the finer points of the trust. The issue only came to light last year when the Trust had to be registered online with HMRC and F realised that the Trustees names would need to change as the company no longer existed. F has since changed the Trustee names to her daughter and SIL.

To make matters worse F and long term partner T aren’t married so no additional IHT allowance can be applied. F has just been dignosed with Dementia. The Will leaves the main residence half to the daughter and half to partner T.

F also has 2 other properties in her name (not in Trust) and healthy bank accounts here and abroad.

Any advice is welcomed.
Thank you

2

This situation seems too complex to be dealt with on a forum of this nature. Specialist advice should be taken - perhaps from Counsel.

The transfer of the main residence to trustees does indeed seem to have been a ‘gift with reservation’. The current value of the residence will therefore be in F’s IHT estate.

It seems also that the RNRB has been lost.

You say that ‘The Will leaves the main residence half to the daughter and half to partner T.’

Isn’t the main residence owned by the trustees?

3

Thank you Gerry,

The title deed for the main residence is in F’s name only even though they have both paid for the upkeep of the property over the past 50 years. F & T live in Scotland.

It was considered that F should start paying market value rent for the property to remove ‘gift with reservation’ and the new Trustees could arrange for this to happen. However, from reading this forum, trying to set up a Trust bank account appears to have it’s own issues.

Thank you

4

If the property is in Scotland then advice may be needed from someone qualified in that jurisdiction. Property in Scotland is subject to Scots law and it is possible the formalities to transfer the property to the trust have not been observed.

Paul Davies
Clarke Willmott