Property Probate Trust

I have a situation where the deceased created an inter vivos Property Probate Trust in 2016. In this he transferred his share of the property into a trust. His spouse, who is still alive, did the same with her share into a separate trust. The deceased’s trust gave him and on his death his spouse a life interest. The life interests are subject to overriding discretionary powers. The gift was under the Nil Rate Band in 2016 being £275,000. It is now over the Nil Rate Band (say valued at £375,000) and by my analysis it is a GWR. I am aware of IHTM14303 which allows for spouse exemption to be claimed in certain circumstances. I was questioning whether it is possible to claim spouse exemption in this case, as the spouse now receives a life interest under the terms of the Will albeit not a qualifying interest in possession. If this works, it wipes out the IHT caused to the estate by the GWR.

If this is not possible, the estate is straddled with the value of the GWR (being £375,000) and the loss of the Nil Rate Band of £275,000 caused by the initial gift. What I cannot ascertain is how double charges relief applies to this. There was no tax caused by the initial gift. Is it just a case of Nil rating this in the 403 form and using the value of the GWR to calculate the tax? Any guidance on this would be appreciated. All of HMRC’s website examples assumes the lifetime chargeable transfer triggered tax. I am going round in circles on both issues!

Not quite sure why no-one has responded; maybe I’ve missed the point.

The inter-vivos property probate trust is subject to the relevant property regime. Neither of the spouse’s interest in possession are “qualifying”.

As a beneficiary of the trust the gift (a chargeable lifetime transfer (CLT)) into trust gives rise to a GWR. No IHT is payable on settlement as the lifetime amount settled falls within the then NRB.

On death, no IHT or CGT consequences arise the surviving spouse then acquiring a “non-qualifying” interest in possession. However, the inter-spouse (s18) exemption does not apply.

Any possible double charge to IHT is alleviated under SI 1987/1130 ie two calculations are performed to ascertain the IHT on the settlor spouse’s estate on death, the first includes the GWR but excludes the CLT and the second includes the CLT but ignores the GWR. The higher IHT charge is then taken

Prima facie, the first calculation will produce the higher charge.

Because the CLT gave rise to no IHT charge when made, any recalculation using death rates (ie £325k NRB) will produce a zero IHT charge thereon.

Malcolm Finney