Your 1 works because RNRB is applied before NRB: IHTM46003. Your 2 and 3 are exempt so you need to limit 1 to £175k if you want have a full TNRB or to that amount plus the available NRB to avoid a tax charge. Latter is good where TNRB is available from the spouse of a previous marriage.
Jack Harper
A Will DT for the whole estate comes within s.144. The trustees have two years to create the optimum provisions with reading back to date of death, ideally with default provisions to kick in 23 months after death in case the trustees do not get their act together.
But CGT will apply on the basis that the trustees acquire the asset as legatees and actual real world transfers out of trust will be deemed disposals; as s.144 will make any such distributions non-events for IHT there will be no s.260 TCGA hold-over relief but PPRR would be available in principle under s.225 TCGA to any gain on the residence. However, will not usually be the case if the property interest is appointed under s.144 to the children on an IPDI as it is will rarely be their main residence.
If it is not the childrens’s main residence there will be a taxable gain on sale, or termination of their interests (PET or CLT) if there is then an absolute entitlement event-and no hold-over relief if it is a PET-but not if the asset is retained until death. This “difficult to manage” CGT problem stems from giving the children IPDIs, whether under the Will itself or by appointment under s.144 but the latter may involve a near-term gain as well as one in the future.
Jack Harper
Thank you Jack and final question. How soon could Trustees terminate IPDI benefitting children on first death. Would it need to be in place until such time as the TRNRB is claimed.. so after the surviving spouse passes away.
I’m just thinking that possibly within that period of time one of the children “enjoying” the IPDI may have marital difficulties, and having the IPDI may work against them. Maybe if that’s the case and providing there’s more than one child the Trustee can terminate divorcing child’s IPDI but keep IPDI in place for other child?
The Residence Nil Rate Band is a nightmare. Hopeful that RR will get rid of it on Budget day!
Entitlement to RNRB is determined at the moment of the first death (including any reading back to it under s.144). It is not lost because those who have then “closely inherited” later cease to own the QRI that attracted the relief.
The IPDIs can be terminated in short order after the first death. Preferably by the trustees exercising an overriding power (with an eye to GAAR).
Presumably you may want to bypass the surviving spouse’s estate but still clock up PPRR. A way of doing that would be for the IPDIs to be followed by a DT of which the survivor is an eligible beneficiary so s.225 would then commence to apply.
That would not be a deemed disposal at all for CGT and the non-exempt period will gradually become less significant.
The children will make CLTs but hopefully within their NRBs so no worse an outcome than PETs. If the children are eligible beneficiaries of the trust however they will make GROBs under s.102ZA FA 1986. (Grandchildren would be an ideal substitute). If after the second death the property is appointed out to them there is no further PET under s.102(4) as it will go into their actual estates. The CLTs will drop out of their cumulation 7 years after the IPDI termination.
Terminating the IPDIs in favour of the surviving spouse is simpler: any gain would be small (PETs so no hold over) and no GROB as long as the children later avoid actual occupation. Of course the value will then be taxed on the second death.
The IPDIs could be terminated without any IHT consequences if appointed out to their holders; any chargeable gain should be small if done soon. Of course it would be simpler to give them absolute interests under the Will but it does enable the trustees to treat them differently e.g. keeping a share of one child in a DT if divorce is a risk.
This kind of planning is a little uncertain at present as one cannot be sure what the cruel ogress at No.11 has in store for capital taxes.
Jack Harper
That’s all very helpful Jack thank you!
Morning Jack just re reading this response from you again:-
Presumably you may want to bypass the surviving spouse’s estate but still clock up PPRR. A way of doing that would be for the IPDIs to be followed by a DT of which the survivor is an eligible beneficiary so s.225 would then commence to apply.
It seems like a good option. Just to clarify though, it wouldn’t be the same DT that receives residue on second death though would it? Whilst it would keep my drafting simpler (I’d just need to add surving spouse as discretionary beneficiary) it would mean that Trust is created years earlier than intended and this may well impact anniversary and exit charges. Or should I not be too concerned about this particularly as the only value in the DT whilst the survivor is alive is £175K plus growth.