I wondered what the current views are regarding indexation of an equitable charge in relation to a NRBDT, now that the second spouse has dies. We have an equitable charge of £250,000 and the indexation is £107,000, using the most recent RPI figure.
Do the trustees formally need to demand repayment?
Is it okay to deduct the amount of the charge plus the indexation as a debt on the estate. I know that HMRC will view the indexed sum as income and income tax will be payable at the trust rate of 45%. There is nothing in the Charge document permitting waiving of indexation.
I would appreciate any advice on the current position.
Are the beneficiaries of the trust also the beneficiaries of the estate of the second spouse? If so I would’ve thought that notwithstanding the lack of permission in the Will enabling the trustees to waive indexation, they could still do so if they have the Agreement of the beneficiaries and therefore the executors only claim the original loan as a debt of the second spouse’s estate.
Thank you Patrick. Yes the beneficiaries are all the same. If we don’t add the indexation element as a liability of the estate, I think we’ll still be within all the allowances so there shouldn’t be any IHT payable, just using the equitable charge as a debt. What are the practical steps involved in waiving the indexation?
How would HMRC view this in terms of not paying income tax if we don’t apply the indexation?
Anne, from my recollection of my case, where admittedly the trustees had power to waive Indexation, I prepared a suitable waiver which they signed. I then only included the loan as a debt in the estate of the second one to die. My understanding is that HMRC will not object to a waiver. If I remember, this subject was covered on the forum perhaps three or four years ago so do a search. I would in this instance get the beneficiaries of the trust, who are, as you have confirmed, also the beneficiaries of the estate, to join with the trustees in the execution of the waiver.