IHT re: aggregating life interest with free estate – can IHT attributable to the trust be apportioned between trust assets?

There is an estate with approximately £200K of assets, but deceased had a life interest in a trust with 2 assets - one being farmland worth £2m and a property worth £550K. It is hoped that APR and BR can be claimed for part of the estate assets and that 100% APR can be claimed in respect of the farmland in the trust. This being the case, with allowances, there should be no IHT.

The farmland reverts to the son and the property reverts to the daughter. Following the death of their mother, the trustees hold these assets as bare trustees for son/daughter respectively.

The property has been sold. The trustees are refusing to release any funds until HMRC clearance has been obtained.

If HMRC do not allow any reliefs, there could be IHT of £800K. I am aware that this is calculated pro rata between the estate/trust, but can the trustees dictate that all the proceeds of sale of the property must be used to pay IHT relating to the trust or should IHT be calculated pro rata between IHT attributable to each of the farmland (not receiving any reliefs) and the property? It would be unjust if the daughter received nothing?

The IHT on the trust fund is a general charge and, unless either property is specifically given to the son or daughter “free of tax”, each asset will bear its own share of the IHT, in proportion to their values for IHT.

Yes, if there is no direction about the payment of IHT and it was all taken out of the proceeds of sale of the house that would be unjust, and may leave the trustees open to a claim for breach of trust.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

PO Box 421, Wilmslow, Cheshire SK9 0EX

T: 07712 664127

Email: paul@paulsaunders.net

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Many thanks Paul – that’s been really useful.