I have been instructed to prepare a Will for a client. His circumstances are quite unique. He is married, but both he and his wife have been widowed before. Therefore, both will have a NRB and TNRB. Both have children from their previous relationships.
His estate is quite large. The property in which they live is worth approximately £600,000 and is in his sole name. He has about £1.3m of “other” assets. Approximately £400,000 of this is invested on the AIM and, in my opinion, will qualify for BPR.
His wife’s estate is only worth approximately £100,000. She does not own a property, but she did prior to moving in with my client.
If he left everything to his children on his death, based on current figures, I estimate the IHT bill to be £250,000 taking into account the full TNRB and TRNRB and BPR.
If he dies first, he would like his wife to continue to live in the property for the rest of her life and thereafter to his children.
I contemplated him putting the property into a Discretionary Trust and the residue to his children. However, this would give rise to the same IHT liability.
If he left a life interest in the property for his wife, then the property would be covered by spouse exemption but, of course, it would aggregate with her estate and, presumably, would then diminish the TNRB and TRNRB she has available from her late husband’s estate. To what extent would it do so?
Even if the property aggregated with her own estate then, on his death, the tax liability (assuming everything else passes to children and BPR applies) would be £20,000. Then, so far as his wife’s estate is concerned, even if all of her late husband’s NRB and TRNRB has been exhausted and assuming her estate equates to £100,000 then she would currently have a NRB (and possibly RNRB) of £425,000 combined. Her estate would equate to £700,000 and so tax on her death would equate to £110,000, some payable by her estate and some payable by the trust.
It would seem, therefore, that the life interest trust is the right way to go. Have I missed something?
Any guidance would be greatly appreciated.
Martyn Dixon
Harold Bell & Co.