In the situation where say a widow dies owning 50% of the property with the other 50% in a life interest will trust of her husband who died previously and her free estate is £150k with the trust worth £100k (therefore combined value for IHT £250k) Probate can be applied for using IHT205 as it is excepted but what about the Trust? Do the Trustees have a requirement to submit an IHT100?
I have always thought the answer is no as there is no tax to pay (Both NRB’s available) but i cannot find the authority for it. I don’t see that the 2008 Regulations apply as I see them as applying to terminations during the lifetime of the life tenant and not on their death. Is it the case that strictly an IHT100 is required but HMRC do not enforce it where there is no tax to pay?
As there is no IHT to pay, there is no need for you to submit an IHT 100. You will be reporting the existence of the trust in the IHT 205.
* The following is an extract from HMRC’s website on trustsand inheritance tax:-
* ## Telling HMRC about charges
* If Inheritance Tax is due on assets in a trust you will need to fill in [form IHT100](https://www.gov.uk/government/publications/inheritance-tax-inheritance-tax-account-iht100) and the relevant event form - IHT100a to IHT100g.
* Some trusts do not have to send in an IHT100 form as long as they meet the [rules for excepted transfers and settlements](http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm06120.htm) - usually trusts with a low value.
The Trustees are not required to lodge form IHT100 because the value of the trust is less than 80% of the NRB and no IHT is payable.
If the Trustees of the will trust are different from the executors of the free estate and the Trustees want formal clearance then you will need to lodge an IHT100.
The excepted transfer and settlement regulations (referring to 80% of the NRB etc) do not apply to the termination of a qualifying life interest on death.
HMRC in the May special edition 2003 of the trusts and estates newsletter confirmed that no IHT100 is required when a grant has been extracted as an excepted estate and no notice has been sent to the PRs. In these cases the automatic clearance contained in the excepted estate regulations will apply at the end of the specified perios.
I am waiting to be shot down here, but is it right that the excepted transfers regulations in The Inheritance Tax (Delivery of Accounts) (Excepted Transfers and Excepted Terminations) Regulations 2008 do not apply to a termination on death?
5(1) of those regulations state that “An excepted termination is the termination of an interest in possession in the settled property of a specified trust in any of the following circumstances.” The next paragraphs go on to define the “circumstances” which include the case where the value transferred does not exceed the IHT threshold or 80% of the IHT threshold depending on the nature of the assets. I can’t see why this wouldn’t include a termination arising on the death of the life tenant.
The rules were different up to 2007; less generous as I recall, although I am not sure whether they were different on this particular point. I can’t access a copy of the 2003 newsletter to which Simon refers, but assume it was based on the old rules?
I will not shoot you down Diana as I do not have sufficient ammunition! I have always believed these regulations only applied to lifetime terminations of IIP trusts, but looking at the regulations, I cannot find this spelt out, however:
in the consultation, HMRC said the FA 2006 had restricted the situations when a lifetime transfer was a PET, when no account is needed, and they wanted to expand the previous regulations allowing no account to be submitted in relation to some chargeable lifetime transfers and IIP trust terminations. No reference was made to a termination on death;
all examples In the HMRC manual refer to termination during lifetime, not on death;
Regulations 5(3) and (4) refer to previous chargeable transfers by the transferor in the previous 7 years being taken into account when seeing if the 80%/NRB threshold figures are breached, no reference is made to the aggregable free estate-which it would have if this was to apply on death terminations.
HMRC made it clear that the regulations would only allow no account to be delivered, where there is no tax at stake, and little or no compliance risk. If there is a death termination when the trust is worth say £260,000, if the regulations applied no IHT account would be required. If the free estate was worth say £1m there would be tax payable from the trust, so tax would be at stake, and HMRC would definitely require an account. The trustees would also want clearance, but statutory clearance is not available if it is an excepted termination, except in one very limited circumstance.
So, I still believe the regulations do not apply to death terminations, but I am afraid I cannot put my finger on the statutory evidence of this!