Lifetime settlements using donors NRB but remaining in estate due to GWR

I have a questions which seems simple enough but proving hard to secure a definitive answer.

If Mr and Mrs Bloggs settle their property in their lifetime with the intention to live in the property then they will be using up some of their NRBs from the gift into trust. Now, as they have retained a benefit the value of the house will remain in their estate for IHT purposes.

Am I on the right track by thinking then that should the house be worth £600k then £600k NRB will be used by the settlement leaving £50k potentially available. If both Mr & Mrs Bloggs do not survive 7 years then their NRBs will not be replenished and the IHT value for the survivor’s estate will be £600k due to GWR. Assuming no other assets for the sake of this example the remaining £50k NRB could be set against the £600k value leaving £550k chargeable to IHT?

Could someone either confirm this is correct or whether I am heading down the wrong path?

Ben Schofield
Irwin Mitchell

I believe the provisions for double charging relief apply in these circumstances. You may wish to look at the IHT manual at IHTM14711 and onwards for commentary, examples and statutory references.

Diana Smart
Gordons LLP

The following is not a response to the enquiry posted - in discussions over the last few days, I have been reminded that when gifting the family home, the question of CGT is not always considered.

If, in the example given, Mr & Mrs Bloggs are beneficiaries of the NRB trust, then s.225 TCGA 1992 should apply to negate or reduce any gain chargeable to CGT.

Where, though, the home is given to children, or a trust of which the parents are not beneficiaries, the donees will be liable for CGT on any gain from the date of the actual gift – the gift with reservation rules apply a deeming provision for IHT only and have no impact upon the fact the property was gifted to a third party.

In an issue I was asked to comment on yesterday, the children may be looking at a CGT liability of over £1/4 million and are likely to be instructing their own solicitors to open discussions with their parents’ advisers.

Paul Saunders