Have a case where H&W have settled main residence into a RPT (disc) in 2017. Value was under 650K. On H’s death the value of his 50% share would use up a good chunk of his NRB as a GROB. If the property is left in trust the wife wont get RNRB and needs this given not much transferable NRB. Considering appointing 50% back to her to secure RNRB (she will leave her share to daughter in will) but if other 50% share is either left in disc trust or appointed to daughter am I correct in thinking that W will likely get a 10% discount on property value and this 50% would be out of W’s estate being the 50% settled by H? Appreciate any comments
You seem to have assumed both that H will die first and is content to suffer the GROB.
The appointment back to W will be a deemed PET but also an RPT chargeable event. In principle Double Charges relief, you might think, was available but IHTM does not see fit to provide an example of this sequence, There was some debate recently on here about the status of a PET followed by a CLT and the conclusion was that while the PET has not yet failed it is exempt and I suggested that the authority for that is s3A(5). So the charge on the deemed PET is nil and any tax on the contemporaneous RPT distribution is what is payable. Arguably there is no double charge relief but if there were the outcome would be identical.
If the PET fails is there any relief for the prior RPT charge? Under SI 1987/1130, no. Would HMRC have regard to s104(1)(d)? I have had no relevant experience and IHTM offers no guidance. They may take the view that because of s3A(5) no double charge event occurred because the deemed PET was one of the double charge events and the failure does not create a second such double charge event. It must be remembered that although a charge on a failed PET is taxed on the occasion of the later date of death and on on its historic value as part of the death estate under s226(3A) the date it is actually made is not altered to the date of death so there is arguably no second event at all. However Reg 5 of the SI specifically provides for relief as regards the deemed PET and the later death, though “the property” must be the same on each occasion. As it benefits the taxpayer no argument of ultra vires will come from the PRs and HMRC are not likely to own up to a duff SI.
The related property rules do not apply to property settled into a non-charitable RPT so a discount should apply on the RPT distribution. It might be a 15% discount. Depends on how the VOA would apply 18.4 of their IHT Manual. The trustees are not joint owner-occupiers at the valuation date but the practice’s emphasis is on the other co-owners who are residents. Its rationale is that the trustees would have more trouble selling their interest because their purchaser might well not obtain a court order for sale of the entirety (especially for a small percentage ownership) if the others refused to join in. in.https://www.gov.uk/guidance/inheritance-tax-manual/section-18-undivided-shares
Sorry I should have been clear H has died and had a gwrob at death - thank you for your comments which are helpful