IPDI and Deed of Variation - include wording for CGT and IHT?

Trusts Discussion
1

I act in respect of an estate where the executors and benes are agreeing to vary the Will of the deceased.

The deceased’s girlfriend had an IPDI of the property. She is now giving this up in lieu of other assets in the estate. Property is now passing to deceased’s children by way of the DOV.

My concern is that girlfriend has occupied property as her principal residence as a bene of the trust and therefore would qualify for PPR against CGT. Whereas, the children won’t.

There is a saving to IHT due to being able to claim some of the RNRB which otherwise is lost, but it is also expected the property will sell for £100k over the probate value so naturally can appoint a share to the benes but this won’t save much given the CGT annual exemptions are now so low (and property likely to sell after April 2024).

What I am wondering is if we can have our cake AND eat it (perhaps a dream here) and put the IHT wording in for s.142 IHT 1984 and to omit the wording for s62(6) TCGA so that for CGT purposes, the girlfriend is deemed to have occupied and ceased occupying the property under the trust, thereby being able to claim PPR under s.225 TCGA I presume, whilst the IHT saving is also made against the RNRB.

I haven’t had a need to split the IHT and the CGT before and wonder what the negatives of doing so might be? Would we need to claim the PPR by way of s. 225 TCGA in any way? How does the HMRC know the trust then has ended - are there any reporting requirements? It all seems very messy to split them but equally want to make sure I have uncovered every stone for my clients.

2

It is certainly possible to make a DOV which is effective for IHT only and not for CGT. As you say the consequences need thinking through. The consequences are potentially different if the property has been appropriated to the beneficiary (or if the estate administration is at an end) compared to where that is not the case. The HMRC manuals deal at some length with the topic.

You may find the best result is to create a trust, by way of DOV, whereby the children have an IIP in say 95% of the property and the girlfriend has an IIP in say 5% of the trust property. The trust as a whole will qualify for PPR relief on a sale (not just on 5%). For IHT the 95% will pass to the children and use up the RNRB which I assume is the intention here.

Paul Davies
Clarke Willmott

3

HiPaul

Thank you for your advice.

Is it not the case that at least 70% of the property needs to pass to the girlfriend to qualify for PPR?

How is it the trust can only benefit her by 5% but the whole value of the trust qualify for PPR? This is news to me. Thank you, this is so helpful.

4

Hi Paul

Following on from above, I suspect the girlfriend may not agree to this as naturally the IPDI would need to cease after the 2 year mark and that would create a PET.

Assuming she would agree what is the minimum percentage she would need to have?

Is there a resource / legislation I could go to to reinforce your learned suggestion?

Kind regards

Christina