New IHT and trusts

[langtonbrow]

Dear all,

Please consider these circumstances,

- Father died in 2003 and left half of house (and other assets) in discretionary will trust.
- Mother lives in house.
- Son bought into house so owned 50% trust, 25% mother, 25% son. Son also lives in house.

In future will the new IHT family home uplift be applicable in these circumstances? Hopefully the split ownership of the trust will ensure that it will be.
Look forward to any thoughts.


With regards
L.

[maths]

I assume you are referring to the newly introduced Residence Nil Rate Band for IHT?

It applies only to deaths on or after 6 April 2017.

It would seem that as father left his 50% in trust pre 6 April 2017 on death, his RNRB is in principle transferable to his surviving spouse on her death.

[langtonbrow]

Dear Maths,

Yes I am referring to that. I have heard that where discretionary trusts are included then the rules are different and the RNRB will not be available, which seems to contradict your suggestion.

with regards

[langtonbrow]

With this change coming up soon I am wondering if the impact on existing trusts has become clarified over time?

As my father died over 14 years ago with a discretionary trust in place (with half home ownership included) and my mother is still alive and well is there any cause for concern and ability to adjust?

I am thinking that if an excessive charge is due on property then an allocation of some of other assets into, for example, discounted gift trusts and forestry funds may be helpful.

with regards
l

[maths]

I have heard that where discretionary trusts are included then the rules are different and the RNRB will not be available, which seems to contradict your suggestion.

No.

My comments referred to the fact that on father's death he left his 50% interest in the property on I assume a nil rate band discretionary trust. As a consequence and as death occurred pr 6.4.17 he did not (in fact could not) make use of any part of the RNRB. Hence it is available on death to his surviving spouse.

The position post 5.4.17 is that any interest in the family home left on death (post 5.4.17) to a discretionary trust will not qualify for relief under the RNRB.
Hence mother on her death is in a position to use her own RNRB plus that of her husband only if she leaves her 25% interest to a lineal descendant (eg you).

Depending upon the figures involved it seems unlikely any part of father's nil rate band is available for transfer to mother on her death.

[langtonbrow]

Thanks for responding again Maths

it seems unlikely any part of father's nil rate band is available for transfer to mother on her death

With reference to the above it seems that £325K (IHT limit) + £100K (Mothers NRB) + Fathers Discretionary trust component (50% of property from 2003 death) - but no NRB (which didn't exist in 2003 anyway) will effectively define the current allowance.

In this case an existing operational discretionary trust is apparently still fulfilling a useful tax purpose, which I hadn't appreciated from various articles stating that review of arrangements could be beneficial. Perhaps review is only relevant for recently drafted wills?

L.