If a will contains two discretionary trusts: one to include APR/BPR assets and then a residue discretionary trust - will both have nil rate band allowances on 10th anniversaries?
They will be treated as made on the same day and as they will contain “relevant property” they will be related settlements for RPT anniversary and exit IHT charges. A QIIP Will trust, IPDI or s89 disabled trust, was once so treated but is no longer.
Jack Harper
Would I be right in assuming that a NRBDT created on first death and a DT on second death created by the same testator would be treated as two trusts, each with it’s own NRB allowance on 10 yearly anniversaries?
And what about where both spouses leave their respective estates to a DT - again presumably two trusts again or does the fact they are created on same day - date of survivor’s death- muddy the waters?
Thanks Jack - what if the APR/BPR disc trust continued as such, but a life interest was appointed to a surviving spouse within 2 years of death in respect of the residue discretionary trust - does this mean that the APR/BPR disc trust would have the full NRB on the 10th anniversaries?
Will drafting practice for 100% APR/BPR property which leaves it into a DT is firmly based on that 100% relief neutralising the charge on death and subsequent RPT charges. It has never been based on the availability of a NRB, mainly because the usual very significant value of the asset before relief will pull the effective rate of tax up towards 6% even if the settlor has a nil cumulation on death.
For this reason property which has only attracted 50% relief was not routinely left in this way and of course was not tax-free on the death either, so that spouse exemption was preferable where there was a surviving spouse; there was also the factor that the spouse inheriting on death did not need to re-qualify for relief by a further ownership period.
This practice will be seriously affected by the new rules for deaths after 5 April 2026. After the £1m tax-free allowance any excess value will attract only 50% relief. A DT gift that exceeds the allowance will be taxable in principle on death and will attract a positive rate of tax to later RPT charges. The 50% relief will restrict the effective rate of those charges to a maximum of 3%, although with an instalment payment facility. That may be manageable whereas the death charge, even with instalment facility, may not.
This has forced clients to consider lifetime PETs, while stocks last, and tax funding measures, especially where there will be no surviving spouse and the client is not young and healthy. It may be that after the next election Wills will need changing if the current politicians who think a pig is a type of large cat are ousted.
Jack Harper