I have a situation where deceased (W) died leaving life interest in main residence (owned T-I-C with 2nd husband (H)) and life interest in income from a commercial property held in W’s sole name, to H with W’s children as remainderman on both. Residue to children.
H has gone into a care home (3 months after death of W) and children are selling main residence.
Does the life interest in main residence still attract spousal exemption?
Does the commercial property attract spousal exemption?
Can RNRB be claimed on estate?
There is no TNRB as first husband is still alive.
If there is no spousal exemption then there is a significant IHT bill due.
There is no obvious reason why a sale of the main home should cause spouse relief on the death of W to be lost.
The interest in possession created over the commercial property should benefit from spouse exemption also.
On the basis that W’s interest in the main residence is left to her husband, it appears RNRB cannot be claimed in her estate, regardless of who might be entitled on his death. Provided that the sale of the main home qualifies as “downsizing” RNRB and TRNRB may be available to his estate on H’s eventual death.
The above is on the basis that there is o other property within W’s estate in which she has resided in the past, so as to bring it within the statutory definition of qualifying residential property.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
No RNRB applies on the death of W as the interest in the main residence is not closely inherited.
On H’s death there is no qualifying interest in H’s estate to be closely inherited.
For an RNRB to be available on H’s death requires the so-called downsizing addition to apply. This requires that there has been a disposal of the interest by H during his lifetime. If the trustees appoint the main residence to the children (terminating H’s life interest) who then effect the sale as absolute owners I do not believe H’s estate will be able to claim the RNRB. This is because for an RNRB to be claimable under the down-sizing provisions requires a disposal by H which suggests, for example, a surrender by H or a disposal by the trustees (but not a disposal by the children).
Just re-read my post. I think I seemed to have argued against myself ! Not easy to do.
RNRB should be available as trustees on appointing out main residence to children will have resulted in H having been deemed to have terminated his interest in the residence ie is deemed to have disposed of his interest.
Is the life interest trust of the residence continuing and applying to give H a right to income from the sale proceeds or was it merely a right to occupy the property which terminated when H left? If the life interest has come to an end then I wonder if there is a risk the Revenue may take issue, as they can be suspect of extremely short-lived life interests to a spouse. Possibly an argument that H effectively disclaimed before benefitting from the trust?
The genuine change of circumstances leading to a move into care should assist in demonstrating that tax-planning was not the main motive though. ,