Hi, sorry I see there has been lots of discussion about this!
I have a single woman with a property (that she occupies) worth more than her nil-rate band so a LI trust has been created (in 2016) over £325k and there is a charge on the LR in favour of the Trust. The settlor is a trustee, along with the Longs but she has power to appoint and remove trustees so presumably that’s that for the trustee issue, unless I’m missing something. She can just execute a deed of appointment and removal without their consent being required?
If she were to undo the arrangement (as she was under the impression there would be an inheritance tax saving so without that doesn’t see the point due to the value of her other assets) am I correct in thinking that she has used her nil rate band in any case to set up the trust. So if the arrangement is undone using powers of appointment she could end up paying more tax if she were to die before 2023? Or is there a mechanism in the IHT act to allow this, making it a tax neutral action?
I’ve searched and looked and tied myself in knots. Please help!
Your concern I think is that for the purpose of charging IHT, both the gift into trust, and the property itself, would be taken into account if the client were to die before 2023. Actually that concern arises whether or not the trust is wound up, assuming the property in the trust is deemed to be included in your client’s estate as a gift with reservation. There is relief against double charges in certain situations - see the IHT (double charges relief) regulations 1987 (SI 1987/1130). I believe these will apply to your situation but a careful analysis is required to be sure. One particular problem in the case you describe is when the individual is married and wishes to pass their estate on death to their spouse, since double charges relief can only apply when both the transfer of value in life, and the transfer on death, are subject to IHT. I assume however that is not an issue in your case.
Paul, are you saying that if the lifetime transfer into trust is below the NRB (no IHT paid) and/or the estate is not subject to IHT then the double charges relief does not apply?
We have a similar situation which is causing some head scratching.
The relief against double charges is most commonly encountered in the context of gifts with reservation but it can apply in other circumstances as well. HMRC are not supposed to charge IHT on the same asset twice. Remember that assets falling within the nil rate band are not exempt from IHT, they are subject to IHT at nil percent. Under the rules against double charging, IHT is calculated (i) including the gift and ignoring the asset in the estate; or (ii) ignoring the gift and including the asset in the estate; and IHT is charged based on whichever of the two amounts is greater. If the amount is zero under both scenarios then the IHT is zero.
The Settlor has indeed reserved a benefit and due to there not being any chance of her remarrying (in her words) the only reason she saw to set this expensive arrangement up was a possible saving of IHT, as her estate is taxable (possibly around £200k) at current values.
The first issue I have is whether ending the Trust (by advancing it to the Settlor) would somehow means that we could not claim relief from double charges, as her nil-rate band won’t ‘recharge’ until 2023.
Scenario -
NRB used in 2016 for Life interest Trust of £325,000
Whole value of Trust fund appointed back to her in 2019
Death at some point between 2019 and 2022
Tax payable on death of her estate (which is now back at £1,000,000) lets ignore the RNRB
I’ve come up against this again. Thank you very much for your response Paul. Is there any chance you could reply to my last message above, or if anyone else could?
I need a definitive answer so I don’t give my client the wrong advice. I’ve only seen examples of the double taxation relief used for GWROB when tax has been payable and I cant find an authority to confirm either way. These clients are not paying me, by the way, I’m just trying to help a couple of totally perplexed couples in the best way to resolve their issues. I do not charge for ‘having a go’ at something!
I keep at this as I desperately want to KNOW the answers without any hesitation, but I’m realising that its slightly above my knowledge level, Anyone an expert in this who would like referrals as and when they come in?
I have two clients (plus one I passed on who needed to do something right away) and I’ve so far told them there is no harm in keeping the trusts (once the trustee / LR is rectified), but its not ideal for either of them.