I have an elderly client whose wife died about three years ago. In 2014 they created separate lifetime trusts of their respective halves of the matrimonial home with themselves as income beneficiary for life, then the survivor followed by an outright gift to their children.
Evidently this will cause problems in relation to the RNRB and the estate is likely to exceed the joint NRBs.
I am minded to advise the client that the best option would be for the trustees to make a deed of appointment of both halves of the trust property so as to vest the property solely in his name.
The client has at all times resided in the property since the creation of the trust. The deceased wife resided in the property until the time of her death.
By vesting the property back into the name of the client I believe the RNRB will become available (the estate will be passed in its entirety to his children). I don’t believe there are any CGT issues as to the client’s half of the property given that he has resided in it at all times. I’m not so sure about the deceased’s wife’s half. Will this attract CGT on her half of the property from date of death to date of vesting in the client?
Are there any other points I could be missing here?!
It sounds like after the wife’s death the husband became entitled to a life interest in her half as well as in his own half. So it is likely that the trust PPRR has been accruing ever since the property shares were originally settled. Presumably PPRR was claimed on the disposal into trust so there is no issue about hold-over relief having been claimed.
If the trustees have a power of appointment in favour of the life tenant for the time being of each trust then PPRR will apply on the deemed disposal when each power is exercised and afterwards (while residence requirements continue to be met).
The IHT consequences of this kind of venture are very disadvantageous after 22 March 2006. The self-settlement transfers were TOVs and CLTs (subject to any NRB). They were also GROBs. The two trusts were RPTs with a TYA in 2024. The wife’s death in 2023 was not an RPT chargeable event but the GROB was chargeable (subject to double charge relief but here the prior CLT had by then ceased to cumulate in 2021). The exercise of each power of appointment will be a RPT chargeable event but a 15% discount will apply to each half share, as on the earlier TYA, as the trusts are not related property. Each trust may enjoy a full NRB based on the settlor’s cumulation immediately before the date of settlement but 10 years of appreciation may have triggered a positive rate at the TYA which will apply per s.69(1)
with a quarterly reduction under s.69(4) on the values distributed on the date of exercise.
RNRB was not available on the wife’s death as there was no QRI in her free estate and the GROB was not one falling within s.8J(6). But on the husband’s future death a full TRNRB may well be available.
I should have added that the GROB will presumably have reduced or eliminated the wife’s NRB and so TNRB as it cannot have been covered by the s.18 spouse exemption.
Thanks Jack. If I’ve understood you correctly, I should be able to vest the property back in husband’s name without CGT on account of trustee PPPR. His estate will then have his own NRB and RNRB plus any unused portion of the wife’s NRB along with the full transferable TRNRB? The current value of the whole property is probably around 600-650K (valuation awaited) so should be fine also viz ecit charge. Hope I have got that right.
If the wife’s gift into the trust was a GROB, and the value was not covered by spouse exemption on her death, wouldn’t that mean her NRB was used, at least to the extent of the value treated as in her estate? If so, there may be little or no transferable NRB available to the husband’s estate, although his own NRB and any available RNRB/transferable RNRB would still need to be considered.
On that basis, is the practical question whether it is better not to try to unwind the wife’s half, but instead to consider appointing or transferring back only the husband’s half.
On the appointment of property out of trust, PPRR is not automatic for trustees and needs to be claimed, usually by way of a trust tax return. You may well be aware of this, but just in case.