This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

Are step-grandchildren considered direct descendants re main residence nil rate band

rjhfandclf
Posts:26
Joined:Thu Aug 24, 2017 6:52 pm
Are step-grandchildren considered direct descendants re main residence nil rate band

Postby rjhfandclf » Thu Aug 24, 2017 7:27 pm

I am about to wind up a life interest trust created from my father's will (dec'd 1985) following the death of the lifetime beneficiary (his second wife). The original ultimate beneficiaries were my father's two children, who created a deed of variation in favour of their respective children as ultimate beneficiaries instead. This makes the ultimate beneficiaries step-grandchildren of the deceased.

The Gov.uk website on a number of pages (such as www.gov.uk/guidance/inheritance-tax-res ... irect-decs) is consistently vague - if not ambiguous - as to whether step-grandchildren are included as 'direct descendants' or not. The quoted page above states:

"For the purpose of the additional threshold, the direct descendant of someone is:

- a child, grandchild or other lineal descendant
- a husband, wife or civil partner of a lineal descendant (including their widow, widower or surviving civil partner)

This also includes:

- a child who is, or was at any time, their step-child
- their adopted child ... etc. "


Searching online legal advice and law firm sites produces statements that predominantly do include step-grandchildren, however, others merely quote the Gov.uk ambiguity, so the query remains as to what is the definitive answer. This could have a significant, possibly £200,000, effect on the NRB allowable in our case.

Can anyone give me the definitive answer, please? Many thanks

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Are step-grandchildren considered direct descendants re main residence nil rate band

Postby maths » Fri Aug 25, 2017 1:17 am

No, step-grandchild not included; just step-child.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Are step-grandchildren considered direct descendants re main residence nil rate band

Postby maths » Fri Aug 25, 2017 1:12 pm

The relevant legislation is IHTA 1984 s8K (1)(a), and (3).

rjhfandclf
Posts:26
Joined:Thu Aug 24, 2017 6:52 pm

Re: Are step-grandchildren considered direct descendants re main residence nil rate band

Postby rjhfandclf » Fri Aug 25, 2017 4:24 pm

Thank you 'maths' - that is very interesting, but ...

Do not (3) and (8) - which is linked in under (2) - seem to include the child of a step-child (i.e. the original ultimate beneficiaries)? It really is an appalling piece of legislation, in my eyes!

I am presently continuing to assume that I am wrong; so, if I am, then do you think there is an option for the replacement ultimate beneficiaries through the deed of variation (the step-grandchildren) to refuse the bequest somehow so that the deed becomes nul and void - perhaps even by another DoV? - so that the funds raised from the trust could be gifted to them instead on the tapering seven year basis. (NB this would only be of any value anyway if the rest of the estate is significant - which we do not know as yet). Or are the trustees permitted to pay the IHT at the lower rate in this sort of instance, perhaps? Just a couple of 'out-of-the-box' thoughts.

Much appreciated.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Are step-grandchildren considered direct descendants re main residence nil rate band

Postby maths » Fri Aug 25, 2017 5:08 pm

Should have read the legislation more closely.

I stand both corrected an humbled. My apologies.

You are correct.

AnthonyR
Posts:322
Joined:Wed Feb 08, 2017 2:33 pm

Re: Are step-grandchildren considered direct descendants re main residence nil rate band

Postby AnthonyR » Fri Aug 25, 2017 5:21 pm

There's also the question of the two type of step grandchildren:

1. My step child's child
2. My child's step child

Both of which I would consider to be step grandchildren. However, I think that 1. would qualify for RNRB as they are my child for the purposes of the legislation, while 2. would not be my descendent and so not qualify.
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk

rjhfandclf
Posts:26
Joined:Thu Aug 24, 2017 6:52 pm

Re: Are step-grandchildren considered direct descendants re main residence nil rate band

Postby rjhfandclf » Fri Aug 25, 2017 5:39 pm

Should have read the legislation more closely.

I stand both corrected an humbled. My apologies.

You are correct.
In the circumstances, I feel that it is I who should be humbled! Thanks again for your help.

rjhfandclf
Posts:26
Joined:Thu Aug 24, 2017 6:52 pm

Re: Are step-grandchildren considered direct descendants re main residence nil rate band

Postby rjhfandclf » Fri Aug 25, 2017 5:49 pm

There's also the question of the two type of step grandchildren:

1. My step child's child
2. My child's step child

Both of which I would consider to be step grandchildren. However, I think that 1. would qualify for RNRB as they are my child for the purposes of the legislation, while 2. would not be my descendent and so not qualify.
Understood! (Was this legislation ever really thought through properly?)

Assuming that the 'My' referred to above would relate to our recently deceased lifetime beneficiary (our stepmother), then In our case, we are talking purely about your 'type 1' step-grandchildren. So hopefully that is a further agreement ... and hopefully also, a relief.

Many thanks

rjhfandclf
Posts:26
Joined:Thu Aug 24, 2017 6:52 pm

Re: Are step-grandchildren considered direct descendants re main residence nil rate band

Postby rjhfandclf » Fri Sep 22, 2017 12:27 pm

I now have an update that indicates that the estate of the deceased (widowed step-mother) may well not exceed the threshold limit (per this thread) of £525,000. This includes a draft valuation for the IIP trust of £130,000 for investments and £200,000 in property. The trustees (of the trust) have no interest in the newly deceased’s estate, other than settling the trust once all related issues are finalised. The newly deceased’s executors are three of her own children (by her first marriage), who would prefer to administer the estate themselves. In these circumstances, does anyone see any pitfalls for the trustees to look out for, or any recommendations that could be passed on to the executors – or would simply waiting for probate to be granted and any tax paid, if applicable, be sufficient to start releasing the assets to the trust’s ultimate beneficiaries?

It is understood that any IH tax that might be payable would be split proportionately between the trust and the rest of the estate, but I think I read somewhere that the trust could pay its share separately at a lower rate of (?) 20% - but I may have misunderstood.

Also I am wondering how the settlement of the estate might be affected if the property were ultimately to be sold at a higher price than its probate valuation, which might perhaps take the estate back over the IHT threshold. Would this need a revised IHT calculation, or does it then become a CGT issue, despite having been the prime residence, ultimately left to grandchildren?

Thanks!

[NB I have raised a separate CGT query concerning the trust’s investments as a new thread]


Return to “Inheritance Tax, IHT, Trusts & Estates, Capital Taxes”