I am dealing with an estate of a widow.
Her husband died in 1989. He left £45,000 of legacies to various non-exempt beneficiaries, £30,000 to his spouse, the remainder on a lifetime trust to his spouse.
I am calculating the transferrable nil-rate band now available for the spouse’s estate. Am I correct in assuming that the value left to her on trust is exempt i.e. does not eat into his nil-rate band at the time of his death.
Thank you.
In my view you are correct.
Malcolm Finney
Yes, I agree and assuming the death occurred between the 6th of April 1989, and the 5th of April 1990, 38.1356% of the NRB was used. At least that’s my calculation!
Patrick Moroney
Thank you Malcolm.
Can I complicate matters slightly…
The capital value of the trust was £80,000, which would need to be included in the value of the widow’s estate. Who is responsible for the IHT on this capital?
The trustees of the trust are liable for the IHT on the widow’s death attributable to her life interest.
EG
Widow dies with a free estate £500,000. The trust property on death is worth £80,000.
IHT at 40% on 580k ie 232k (ignoring NRB).
80k/580k of 232k (ie 32k) is IHT charge chargeable on trustees (not the widow’s estate).
Malcolm Finney
Thank you Malcolm. This will be an interesting surprise for the trustees, as I don’t think they are expecting to pay anything. I presume there is no relief to claim here either, even though husband left it on trust to wife?
No.
The inter-spouse exemption (ie no IHT) applied on the creation of the settlement but on life tenant’s death IHT is chargeable (unless on termination of the life interest the transfer is exempt).
Malcolm Finney
Thank you Malcolm.
There are queries whether the trust should even be counted as part of the estate as the widow was not receiving any income payments from it for a number of years. This would constitute a PET to the remaindermen. If this is the case, the value of the trust fund could fall outside of the estate if it was seven years ago. In this instance, would the availability of the NRB as discussed in your first reply remain the same?
Another technical issue is that the income payments were potentially stopped due to the widow having been overpaid, with the trustees having mistakenly eaten into capital. It could therefore be argued that despite payments having stopped, her entitlement continued despite the fact she was not receiving income annually. I do not believe any deed was entered into by the widow to end income payments.