I have a case where a husband and wife transferred their respective half shares of a property into IIP trusts in 2010. They were to be the joint life tenants under each trust, with gift over to their children.
At the date of the transfer their respective halves were worth £325,000, so no entrance charge was paid. The Will writing company who set this up advised that this arrangement would dodge care fees, but that the properties would remain in their estates for IHT.
H died in 2014. W has died this year.
The question is now whether the execs can claim the RNRB. In my view these are non qualifying IIPs, so not part of the estate for that reason. H&W didn’t pay a market rent, so they are in their respective estates as gifts with a reservation. GROBs do fall within the definition of closely inherited, but the gift itself was made into trust rather than to lineal descendants (in spite of the IIP and gift over provisions) so I’m inclined to say no.
Would the RNRB not apply since the property is still deemed to be held by the deceased at death (due to the GROB rules) and the children gain a vested interest following death?
I don’t think so, because s.8J(6) states that when you don’t have a qualifying residential interest (QRI) at death, GROB property will only qualify for the RNRB if the gift of a QRI was originally made to a lineal descendant (rather than into trust). Although s.8J(5) appears initially to save this, I think I am right in saying that 8J(5) only applies if you have a QRI at death, which is obviously not the case if you’ve given it away to trust.
The new downsizing provisions also make it clear at s.8HA(7)(b)(!) that if you are an IIP beneficiary, having previously gifted property away, you will only be able to claim the RNRB if the type of IIP is an IPDI, TSI or disabled person’s trust, which again this is not. So it not actually clear to me that this arrangement would have been saved by the downsizing provisions even if it had taken place after July 2015?
Yes you may very well be correct. However, since you have a test case, would it not be worth making an argument to the Revenue to see if they would accept RNRB in this scenario? I think there is certainly an argument that s.8J(5)-(6) taken together provide that:
An asset given away with reservation is an asset in the estate capable of being a QRI (6)
Such an asset can also be a settled asset within (5)
The person who receives the beneficial interest following D’s death is considered to ‘inherit’ (5)
I agree with your point regarding downsizing as it deems that an IPDI is required for this, not merely an IIP.
But IHTA 1984 s8J(6) specifically provides that “B” inherits the property gifted “if B is the person to whom the disposal was made” which isn’t the case.
I just thought I’d give you a follow up here. HMRC denied RNRB (and TRNRB) in this case. They said as I suspected that for RNRB to be available with a GROB the gift would have to have been made directly to a lineal descendant. I tried to argue that for succession purposes there was a direct gift because the terms of the trust gave an immediate, vested and indefeasible capital remainder interest to a lineal descendant albeit subject to a prior right of occupation. They were having none of it!