Inheritance Tax and Trusts

[Frances71]

Hi,
I was wondering whether anyone could give me some information regarding IHT and trusts. My Father has willed it that his property (that he currently rents out) is to be left to my Brother for his lifetime, ie to live in it or to rent it out (like a trust), but after my Brother dies, it is then passed absolutely to my 3 children to be split between them. What we have been wondering is whether we would have to enter this property on my Fathers IHT return and pay any IHT on this property when my Father dies or whether it could be entered in my Brothers IHT form when he dies, being that my brother is not really inheriting the property, but is only having use of it during his lifetime and this property would go into my Brothers estate when he dies, and then IHT would be calculated and paid when my children inherit it. I would really appreciate it if someone could give me some information on this as I've looked everywhere and can't seem to find any answers to my query.
Many thanks

[pqtaxation]

There is potentially a “double” charge to IHT – on your father’s death and on your brother’s death.

Your father’s will on his death you write will create an immediate post death interest (IPDI) trust under which your brother will have the right for his lifetime to live in the property or rent out it out and receive all the income. On your brother’s death the open market value of the IPDI trust property will be added to his own estate to calculate any IHT payable resulting from his death.

Hence if your father’s estate or your brother’s estate (including the IPDI trust property) is more than the nil rate band (NRB) at time of death (plus any available NRB transferrable to his respective estate from pre-deceased spouse/civil partner(s)) then IHT will be payable.

Have a look at the introduction on IHT and trusts on HMRC website at
http://www.hmrc.gov.uk/trusts/iht/which-trusts-pay.htm#4

[Frances71]

Many thanks for your reply. I was only wondering whether this property could be left out of my Father's will because, when my Mother died, she left a property to myself but left it in trust for my Father, ie it allowed my Father to live in the house for his lifetime and then it would come to me. As my Mother's IHT liability would have been over the Nil band allowance, the property was entered into her form but was not added to the rest of her estate, but will now be entered in my Father's estate when he dies as if it was one of his own properties. Therefore, does this type of arrangement only apply to spouses, ie passing assets on (if in trust) and then paying the IHT when the last spouse dies?
Sorry for all the questions, but I've looked at the IHT site and it's really confusing.

Many thanks again.

[pqtaxation]

.. when my Mother died, she left a property to myself but left it in trust for my Father, ie it allowed my Father to live in the house for his lifetime and then it would come to me. As my Mother's IHT liability would have been over the Nil band allowance, the property was entered into her form but was not added to the rest of her estate, but will now be entered in my Father's estate when he dies as if it was one of his own properties. Therefore, does this type of arrangement only apply to spouses, ie passing assets on (if in trust) and then paying the IHT when the last spouse dies?
Sorry for all the questions, but I've looked at the IHT site and it's really confusing.

I can agree you're confused.

The "arrangment" between spouses is that bequests/gifts of property to a spouse are exempt from IHT but not from parents to children (with some rare exceptions). So the property left in her IIP will trust for you father is not chargeable to IHT on her death (spouse exemption) but is chargeable to IHT on his death (by being aggregated with his own death estate for purpose of calculating IHT payable) when it is passes to you out of the trust.

[Frances71]

Many thanks for taking the time to reply to me, it is really appreciated.
And you're right, I'm very easily confused, but I think I understand what you are saying.
Kindest regards