I am presently re drafting a Will for a client who I don’t believe was given correct advice when her Will was drafted first time around.
Essentially she wishes to create an interest for her hubsand to reside in her property (he does not own any of it) for a maximum of (originally 12 months I have suggested more) and thereafter if he wishes to remain in it he has to purchase it at full MV and the proceeds will pass to non exempt beneficiairies. She then had another clause which essentially gave all of the nil rate band to her family and then any residue to charties. I believe that she was under the impression from the previous drafter that because she had given an IPDI to her spouse the house would not ‘eat away’ at her Nil rate band but surely it is only and IPDI for the time he is allowed to remain in it and thereafter forms part of her estate as normal?
I have looked at previous forum posts and even got my old STEP notes out but I cannot find a definitive answer. I am grateful as always.
At the end of 12 months there will be a PET by the husband, but for which the trustees will be potentially liable until his death. It is only then that hmrc will give clearance. Perhaps a direction to grant a tenancy for a nominal rent and the option would work better, but this would use the nil rate band.
Many thanks Simon, useful succinct answer as ever. I knew of a PET in relation to terminating a life interest IPDI but not was unsure if same applied where the testatrix had put a limit on it & also hadn’t joined the dots re her Trustees being potentially liable so once again, thank you.
In response to Pat McDonagh, the PET by the husband on termination of his IPDI will only use his NRB if he fails to survive this by 7 years.
Graeme Lindop
Coles Miller Solicitors LLP
Not very attractive from the point of view of the husband’s beneficiaries if he dies within 7 years. Term cover ought to be considered. And I would suggest that she discuses her intentions with him as I had a case recently where the husband was given a right of occupation of his wife’s home but as he had his own home, he did not want his estate which was just under the NRB to be burdened with tax on his death and was not keen on the idea of maintaining the property just to be able to use it as a holiday home. He disclaimed the gift within 2 years and the children (not his ) paid some extra tax. He was not keen on the idea of waiting for the two year period to pass and then breaking the trust even though term cover was suggested. The solicitors did not think it through when they drew up the Will and the bequest was a total surprise to the husband.