Would someone be able to help me with the following scenario:
Married couple with adult children made wills in 2008 leaving the NRB to those children and residue to Spouse. On the death of the first spouse they decided to enter into a deed of variation to use the RNRB too as the surviving spouse may have over £2 million in their estate, so the relevant share of the property was gifted to the children specifically.
Do the children have to take a share in the QRI or can their share be paid out in cash? It is not the intention to sell the QRI at present as the surviving spouse wishes to remain living there.
Beverley Morris & Co
I believe they have to receive the property for RNRB to apply, rather than opting to take cash in place of the property interest.
If they decide to convert it to cash by selling to the survivor in joint account, this will be a sale, subject to the various tax considerations.
However, I would be wary of HMRC taking issue on the principle of Furniss v. Dawson and arguing that it should be treated as a single composite transaction, thus denying RNRB.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
The question here is probably whether or not something is “inherited” within IHTA, section 8K if it is merely willed to a person but not received by them. “Inherited” is not defined by section 8K so its ordinary meaning should apply. Consequently, it should be the case that something is not inherited unless it is actually received. It may be possible to provide a QRI to the children in such a way that it can easily be converted into cash, however, this will depend on the circumstances of the children and the surviving spouse.
Old Square Tax Chambers
If the QRI were given to the children absolutely by way of the DoV, I don’t see why that interest cannot subsequently be bought from them by the surviving
spouse, but, assuming that the share were bought for £175k, there would be SDLT to pay (and this would be a disposal for CGT). If further IHT mitigation is contemplated, it might be better for the surviving spouse to consider making an outright gift of £175k
to the children rather than using that sum to buy a share of the residence.
Storrie & Company
Thank you all for your replies. Very helpful.
Beverley Morris & Co
had the QRI been transferred by DoV to a Flexible IIP Trust, then the RNRB would be satisfied by the Qualifying IIP for the children as opposed to varying to them absolutely.
The wife continues to reside as an eligible beneficiary subject to Trustees discretion.
If the wife wants the kids to have some cash, then she’s free to give them some without any SDLT issues. Surely this easiest solution, but not now the DoV has been done as we can’t vary the same asset twice.
Countrywide Tax and Trust Corp