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Where Taxpayers and Advisers Meet

IHT418 Form - transitional serial interest?

jimmytwoburgers
Posts: 3
Joined: Tue Oct 08, 2019 9:18 am

IHT418 Form - transitional serial interest?

Postby jimmytwoburgers » Tue Oct 08, 2019 9:25 am

Morning Everyone,

I am in the process of completing an IHT418 form for my late mother. She had put her property into a trust as well as my fathers property (married but lived apart). On the event of her death the trust states her share of the trust assets will go to my father (but still remain in the trust). Is this a transitional serial interest? The trust was setup in 2018. I can't see anywhere in the trust where a contract of life insurance is mentioned.

I am really struggling with the IHT418 form so would be grateful of any assistance.

What is a transitional serial interest?
There are 2 types of transitional serial interest. The first type is where an
interest in possession trust arises on or after 22 March 2006 and before
6 April 2008, but it follows a previous interest in possession that already
existed before 22 March 2006.
The second type is where the interest in possession trust arises on the
death, on or after 22 March 2006, of the holder of a previous interest in
possession and either:
• the new holder is the spouse or civil partner of the previous holder
• the settled property consists of a contract of life insurance

Thanks

AGoodman
Posts: 888
Joined: Fri May 16, 2014 3:47 pm

Re: IHT418 Form - transitional serial interest?

Postby AGoodman » Tue Oct 08, 2019 10:26 am

This is complicated and there is a chance that a trust may not have been appropriate for your mother.

You don't say when the trust was established.

It would only be a TSI if:

(a) the trust was established and property transferred into it before April 2006; and
(b) your mother had an interest in possession (a right to trust income and/or right to live in the property) and on her death your father receives an interest in possession.

If the trust was created after April 2006 then it won't be a TSI. The property will form part of your mother's taxable estate as a "reservation of benefit" (so there will be IHT403 to complete as well) but the spouse exemption probably won't apply.

There is no life insurance so that is a red herring.

Incidentally, if your mother did have a pre-April 2016 interest in possession and the total value of the property in the trust > £260k then the trustees will also need to complete an IHT100b

It would be sensible to get professional help - particularly if the total value involved here is over £325k as a mistake could lead to penalties. Whoever recommended the trust in the first place may be a good starting point. I don't know the circumstances here but a lot of trusts have been "sold" in recent years whereby individuals put their own homes into trust to (allegedly) save IHT or care home costs which are just a bad idea.

jimmytwoburgers
Posts: 3
Joined: Tue Oct 08, 2019 9:18 am

Re: IHT418 Form - transitional serial interest?

Postby jimmytwoburgers » Tue Oct 08, 2019 11:26 am

Thanks for the response..

It was setup in 2018. Two properties were added to it. The Land registry records of the two properties state the owner as "xxxxx family trust". The values of the properties are 170k and 90k. Even if you add these together and put the value of my mums accounts / possessions together it comes in easily under the threshold. I think you are right - it was probably not the right thing for my mother, but its too late now. I just need to unpick it :)

So on that basis you don't think its a TSI? The reason for the question is that on completing the first question on the 418 form, my answers are all NO:

Did the deceased have an interest in possession which was one of the following interests?

• An interest in possession that started before 22 March 2006 and remained in existence until the date of death
• An immediate post-death interest
• A disabled person's interest
• A transitional serial interest

If you answer No to all these questions which then takes me to the end of the form. So I am not convinced I have filled it in correctly! I understand the need for professional advice - i am just waiting for some quotes to come back, I have seen online already some companies asking for £1500 to complete the IHT400. Which i thought was a lot when i have completed most of it myself already and I am just struggling with the 418. I will have a look at the IHT403

Any further advice is much appreciated.

Thanks

AGoodman
Posts: 888
Joined: Fri May 16, 2014 3:47 pm

Re: IHT418 Form - transitional serial interest?

Postby AGoodman » Tue Oct 08, 2019 1:21 pm

That sounds right. The property isn't brought into charge as an interest in a trust (a trust interest is generally only taxed on death where there is an interest in possession). The value of the property is brought into charge as a reservation of benefit under form IHT403.

The end result is the same except I don't think spouse exemption applies. If your mum had held onto the properties and left them to your father under her will (outright or in trust) the exemption would apply.

AGoodman
Posts: 888
Joined: Fri May 16, 2014 3:47 pm

Re: IHT418 Form - transitional serial interest?

Postby AGoodman » Tue Oct 08, 2019 1:27 pm

In fact as the gift was made in 2018, the properties theoretically come into charge twice - once as a gift made in the final 7 years of life and again as a reservation of benefit. Fortunately there is a statutory instrument (I think) which avoids double counting.

jimmytwoburgers
Posts: 3
Joined: Tue Oct 08, 2019 9:18 am

Re: IHT418 Form - transitional serial interest?

Postby jimmytwoburgers » Tue Oct 15, 2019 9:15 pm

Thanks for the advice so far! I have given up trying so i have instructed an Accountant to have a look. Unfortunately he believes a chargable lifetime transfer tax could be due - 20%! He is looking into it further.

Do you think this could apply?

Thanks

AGoodman
Posts: 888
Joined: Fri May 16, 2014 3:47 pm

Re: IHT418 Form - transitional serial interest?

Postby AGoodman » Wed Oct 16, 2019 10:33 am

Yes, it was definitely a chargeable lifetime transfer - pretty much any 2018 lifetime transfer into trust is chargeable.

However, it would ordinarily fall under your mother's nil rate band (taxed at 0%) of £325,000 so no actual tax would be payable on the transfers. Tax could be payable if your mother had made any other substantial gifts in the seven years up to the creation of the trust or her death (by substantial, I mean such that would take her over the £325k threshold when added together).

There may also be a reporting requirement. The values you've given are right on the reporting threshold of £260k. Might be worth checking if this was done at the time.


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