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Where Taxpayers and Advisers Meet

Trust settlor not renting

Rent free settlor in residence
Joined:Tue Sep 14, 2021 6:07 pm
Trust settlor not renting

Postby Rent free settlor in residence » Tue Sep 14, 2021 6:29 pm

Ten years ago I settled the family house in a Discretionary Trust. The trustees are myself, my wife, and 4 adult children. I and my wife continued to, and still, live in the house and neither of us pay rent to the trust. Does this mean that when I die the value of the housewill be treated as my estate with the value over 325000 subject to IHT, but if my wife is still alive, will it be the value over 650000 to which IHT applies?

It may be of no relevance but the Trust will be paying IHT (at I think 6%) next year on its ten anniversary.

Joined:Fri May 16, 2014 3:47 pm

Re: Trust settlor not renting

Postby AGoodman » Wed Sep 15, 2021 12:48 pm

Yes, you have a reservation of benefit so the asset you put in (be it the whole or one half of the house) remains within your estate and is subject to IHT on your death.

If you predeceased your wife, your nil rate band will be £325,000 and anything above this will be at risk of IHT - but anything you leave to your wife would be exempt. The difficulty is that the house cannot be left to her in a way that would qualify for the exemption so if the value of the (share or whole) house that you settled is over this, tax will be payable.

The trust is also subject to the 10 yearly charge.

Settling your home is generally a bad idea - there may be a benefit for care home costs but probably isn't. The inheritance tax position is poor. I suspect a lot of these trusts have been missold.

Oh, you also need to register the trust with HMRC by October 2022 under the Trust Registration Scheme.

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