Living in sin and RNRB

Trusts Discussion
1

My client is, as she says, “delightfully divorced” and living with a new partner. She does not want to marry him. He does not want to marry her. They are happy as they are.

She has two children from her first marriage.

However, her Estate is valued at £900K. Some of the assets are income producing, so she is not minded to transfer them inter vivos but is still concerned about her IHT liability.

If she leaves her home to her partner for life, with remainder to her two children and one grandchild (lineal descendants), will this qualify for the RNRB?

She wants to leave the residue to her children and grandchild. She may obtain a life policy to cover the IHT liability. Any suggestions on residue are also welcome to mitigate against IHT.

Thanks!

2

The life interest to partner will be a QIIP so he will be treated for IHT purposes as if he owns the capital. He isn’t the testatrix’s child so no RNRB, and they aren’t married so no spouse exemption.

On partner’s death, he would therefore be deemed to give the house to someone who isn’t his child or stepchild, so no RNRB. Unless, of course, they marry.

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3

Thanks.

The only solution is to leave the house to her children on first death, subject to a right of occupation for her partner?

That ensures that we qualify for RNRB.

I believe that the right of occupation is still valued as part of his Estate, but I am not instructed to act for him.

4

I do not believe that would work for the reason you have given ie it is still in the partners estate. For IHT purposes the property is still passing through his estate in the same way as a QIIP.

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5

The RoO won’t work. You could include a DT restricted to 2 years less one day then straight to the children as that will gain RNRB. This is from a Lesley King webinar I saw earlier this year.

Or you could go full DT with Trustees appointing out accordingly within 2 years to use RNRB. This a flexible option but I’d suggest professional Trustees with this plan.

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6

@Karl can you explain how your suggestion solves @AGB’s client’s problem? Specifically, what appointment do you envisage the trustees making?

7

Take stock at the time of death with flexibility of DT. Appoint out to secure the RNRB, or not if the main reason to provide for the partner though with loss of RNRB. Will also allow changes to the LoW by the Testator if situation changes.

8

Having talked through this it seems there is a very stark choice:

  1. Provide your partner with security of somewhere to live (QIIP or RoO),
  2. Place him at the mercy of your children by leaving the Property directly to your children, so you can claim the RNRB.

Well and independently advised children could let surviving partner stay in the Property for two years then ask him to move out. By that time, any family provision claim would probably be statute barred.