Any input/thoughts/ sharing of experience regarding the following scenario would be very much appreciated.
Husband (H) died in 2006 leaving a Will containing Nil Rate Band Discretionary Trust (NRBDT). Residue (after legacies) to Wife (W) absolutely. The NRBDT was retained. H’s estate included a half share in the family home (“Property 1”) held as tenants in common valued for probate at £1million. The NRBDT was implemented via the equitable charge route followed by equitable assignment to W.
After the legacies the value of remaining NRB was £234k (NRB in 2006 = £285k).
W sold Property 1 in September 2015 (after downsizing date for RNRB of 08/07/2015). Equitable charge repaid on completion to the Trust giving W a net equity of £731,000. At the same time W requested to re-borrow the funds for purchase of her new property (“Property 2”). The loan was secured by a Legal Charge. Property 2 was a lesser value and sold recently leaving net equity of £192k after repayment of the Legal Charge to the Trustees. The Charge was index linked to the RPI but payment of index linked sum waived.
In terms of “Phizackerley” considerations W was the “poorer spouse”.
W has now moved into a flat (“Property 3”) she already owned worth circa £300k subject to a mortgage of £60k (which was previously a buy to let) and has now decided to live there for the next few years. W has requested to re-borrow the funds (now circa £232k) with the possibility of using Property 3 for security. A half share of Property 3 passed by survivorship to W from H (joint tenants).
If further loan proceeds, W intends to discharge £60k existing mortgage on Property 3 (the new Legal Charge to the Trust could then be registered at the Land Registry without any lender consent issues).
Can I ask what members are now doing about the old style NRBDT arrangements when claiming of the RNRB is an issue? Lesley King has touched upon this in some of her lectures but we are still unsure of the best route in this scenario.
We believe that it is problematic if W assumes personal liability via an IOU/ Deed of Covenant rather than the Trust taking a Charge over property? Historically this raised Stamp Duty concerns
but also may prevent the loan ultimately being deductible from W’s IHT estate?
On current figures the estate would be subject to IHT and it would be wanted to claim the RNRB and TRNRB. The family situation is currently straightforward and W will leave her estate equally between the 3 adult children of H and W (no second marriage or relationship). Trustees currently are W & the 3 children. Do members think it is desirable / necessary for W to retire as Trustee? We understand in some instances HMRC take issue with W being a Trustee.
If the best route would be for the Trustees to take a Charge over Property 3 for the new loan is there anything precluding W’s Executors from claiming the downsizing allowance against the sale of Property 1 (equity on sale £731k)? This assumes at the time of death there is insufficient equity in the current residence to fully utilise the RNRB and TRNRB.