I am currently completing an IHT400 for an estate. The deceased and her husband put their home into a Discretionary Trust in March 2016 - they are both the Settlors and their children are the named trustees. The Settlors are named as potential beneficiaries under the trust. The continued to live in the property right up to their respective deaths (they both died in reasonably close succession).
In my opinion, the transfer of the property into the trusts will be regarded as a GROB and, therefore, the value of the property will be included in their estates for IHT purposes. Is there any reason I cannot claim RNRB - their estates pass to their children?
I believe that it is the immediate gift that needs to be “closely inherited”, and not necessarily what happens on the death of the donor.
As the property went into a discretionary trust, even if on the death of the last settlor it passed to the children I believe it would not be within the definition of “closely inherited”.
If the property remained in the discretionary trust post death, then RNRB cannot be available.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Thanks Paul - that is a very good point. I had perhaps thought the fact that the Will leaves everything to the children, that would be sufficient. Presumably, therefore, if the property is appointed out of the trust to the children within 2 years from DoD, that would allow it to be “closely inherited” by them, thereby qualifying for RNRB?
I agree with Paul that no RNRB applies on death as the property is not inherited by a lineal descendant despite the property forming part of the settlors’ deaths due to the reservations. It is not sufficient as you state “I had perhaps thought the fact that the Will leaves everything to the children, that would be sufficient”; The property has been settled in lifetime on DT and does not therefore pass under the deceased’s will.
In answer to your second post that is not correct. Neither ss 142 or 144 IHTA 1984 apply. The DT is not a will trust. If the trust had been a will trust then appointing out within 2 years to the children would give rise to a RNRB under s144.
It’s a GRoB and RNRB is lost. If there is a surviving widow/er you may be able to appoint the property to them and thereby reinstate the RNRB for their estate. You would also need to submit an IHT 100 for each Trust if terminating (assuming each settled their half shares of the property into the Trust).
You will also need to submit a CGT return for the Trusts and and claim PPR.
I have done exactly this recently for such a matter before the surviving spouse later died and RNRB was granted.
All will, of course, depend on the Trust Deed and the actual circumstances.
As Malcolm Finney has said, S.144 cannot be used. This is not a Will trust. HMRC say in IHTM14303 that the GROB property treated as part of the donor/testator’s estate does not pass under a will or intestacy. HMRC go on to say that spouse exemption might apply; but as this requires an increase in the transferee’s estate, I fail to see how that can apply, as no actual property can be received from the testator. The fact that the trustees might appoint property to the surviving spouse of a deceased settlor, seems irrelevant.
Thank you Raymond for your comment. Carying on with this, presumably I am showing one half of the property in each estate, as would have been the case, had they retained the property? What I mean is, the fact that the wife died first doesn’t mean that the husband now owns 100%.
Hi there
I have a similar situation where the clients are still alive. Though H has lost mental capacity. H and W settled 50% of their share in the property into two separate lifetime trusts on the same day.
I have advised W to appoint a new trustee for H, and to close the trust and appoint it out, in which case we have the opportunity to appoint all of the property back to H&W.
If they didn’t close the trust, I thought i’d read on a previous thread that you can get the RNRB through the downsizing provision in cases like this, but this seems to have been circumvented by the new 8j into the Act. In which case, to be able to claim the TRNRB and RNRB presumably, we must close the trust and appoint the house back to H&W? .
Looking to CGT, it appears you can claim PPR through s.225 TCGA but only if you have an express right of occupation. In this case, there was no express right but naturally H&W did live in the family home - how express does this right need to be? Naturally, they have the ability and freedom to live there, but the Trust Settlement did not specifically state this expressly. It just says H&W take income for their lifetime. H moved into care a few years ago and so only the W has remained in occupation since the settling of the trusts. Can the occupation of the property by W mean she can retain PPR under S225?
Can W claim PPR for the whole property on behalf of her and H if the whole property were appointed to her? Or would that only apply in respect of the 50% she settled - I ask because the trust was drafted using two separate documents. It was not one trust settled by both spouses, but rather two putting their 50% share into a lifetime trust which has had no benefit to them other than to lose money in respect of loss of the RNRB and possibly also CGT.
Having now completed the IHT forms for these estates, by applying a 15% joint ownership discount on the wife’s estate, there is no IHT to pay. However, there is a £12,000 IHT liability on the husband’s estate, even after applying the 15% discount.
If I were to make an appointment out of the trust in favour of the husband’s estate, would it work retrospectively and mean that I could apply RNRB for his estate?
Now that the husband is dead, can an appointment be made to his estate? It would be an unusual trust to include the estate of a settlor (or of anyone else) as a beneficiary.
Whilst HMRC has accepted a variation benefitting the estate of a surviving spouse who had also died by the time the variation was made, I have difficulty being convinced that it would accept a retrospective appointment out of a lifetime trust, even if the trustees had the power to benefit the estate of a deceased beneficiary.
In the present instance, I think the horse has already bolted. Should another reader of the Forum have had experience of HMRC accepting the arrangement Martyn proposes, I am sure many of us, not just Martyn, would be interested to learn of it.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals