We have a matter whereby the deceased’s husband left his residuary estate upon trust for his wife for life, and thereafter to his children. However, during the wife’s lifetime she received no income as the executors of the late husband’s estate failed to administer his estate and only applied for the Grant of Probate after our client had died. Husband died in 2017 and wife died in 2019.
I am aware that the value of the IIP will be aggregated with the deceased wife’s free estate for the purposes of calculating the IHT. I am also aware that we are unable to enter into a disclaimer or variation to redirect the interest, as there is no longer a right to vary.
However, including the IIP will result in additional IHT due of around £53,000 of which the wife’s free estate will be responsible for around £40,000 (very rough figures for the purposes of this question). I wonder whether there is an argument that as the trust was not properly constituted prior to the wife’s death, as the administration of the husband’s estate is still on-going. Or whether HMRC would deem the date the Will trust is constituted as the date of his death regardless of the delays in administering the deceased’s husband’s estate?
Are there any other avenues we should be exploring or is it simply the case that regardless of the executor’s delays and the fact the wife received no income during her lifetime, the IIP should still be aggregated with her estate and the tax needs to be paid? (The executors have now said there is around £1,600 due in income to the wife but if the trust has not been constituted could there be an argument this is administration income).
If the widow received no actual benefit under her husband’s testamentary trust, her personal representatives can disclaim the life interest under s.93 IHTA 1984. The fact she has since died is no barrier to the application of s.93.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I would expect that HMRC would say that the widow had a vested right to the income from the date of her husband’s death, or possibly on the expiry of a nominal survivorship period. The accumulated
income would be treated as a liability of the husband’s estate and an asset of the wife’s.
Does your calculation of tax include the NRB transferable from the deceased husband?
Thank you Paul. The husband passed away in November 2017 so although the two years had not passed when the wife passed away in October 2019, the two year time limit has now passed. I assume therefore that this route now cannot be pursued? The difficulty is that this only came to light on the wife’s death when a copy of the husband’s will was given to solicitors.
Thank you for your response. Yes the tax calculation takes into account the transferable nil rate band. The residential nil rate band is not available and therefore we have a tax free allowance of £650,000.