Insolvent Estate and Interest in Possession

We act for trustee of a life interest trust. The life tenant recently died. His estate may be insolvent as he appears to have left a car and credit card debt. There may be tax due on the trust.

If the free estate is insolvent can the net debt figure be used to set off against the value of the trust? In calculating the deemed transfer of value at death, are the two elements treated separately? If so, presumably HMRC would consider that there can be no negative transfer of value of the free estate. A transfer of value would have to be a positive figure or nil.

Any views welcome.

Samir Hussain

Although I cannot remember the details now, I recall reading about a decision (presumably of the tax tribunal) some years ago with similar facts, which leads me to think that you would not be able to deduct the negative value of the estate from the value of the trust when calculating the IHT charge.

Paul Davies
Clarke Willmott LLP