RNRB and Life Interest Trust

Trusts Discussion
1

Some years ago, clients created a lifetime Trust in relation to their residential property, naming themselves as life tenants. On the second death, the property passes to a Discretionary Trust. At the time, IHT was not an issue for them, but now their assets exceed the double NRB.

Is it just the existence of the Disc Trust which is fatal to the availability of the RNRB or is it also the creation of the Life Interest Trust itself? I think that as the property will be included in their estate for IHT purposes, that shouldn’t stop the RNRB being available and only the existence of the Disc Trust is the actual problem?

To resolve that - the Trust allows the Trustees to exercise a power of appointment during the Trust period. If we were to exercise the power of appointment so as to provide that on the second death, the property passes outright to the children rather than to the Disc Trust, would the RNRB then be available?

Thanks

Sarah Westwood
Buckles Solicitors LLP

2

I believe this is correct provided the current interests in possession are qualifying (ie pre-2006) and the survivor will have part pre-2006 and part TSI under s.49D. This means the property interest would be in their estate under s.8H and would be inherited by the children under s.8J(5).

It doesn’t appear to work for post 2006 trusts as the GROB provisions under s.8J(6) only apply if the original gift (disposal) was made to the child. This is the HMRC view and appears to be correct unless you could treat a disposal to a trust as a disposal to the reversionary beneficiaries for IHT purposes.

Andrew Goodman
Osborne Clarke LLP