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Where Taxpayers and Advisers Meet

IHT Allowance transfer

Bedfordboy
Posts:2
Joined:Sun Feb 13, 2011 8:37 pm
IHT Allowance transfer

Postby Bedfordboy » Sun Feb 13, 2011 10:31 pm

By Deed of Variation in 1999 most of my late father's assets were put into a discretionary trust (half share of house worth around £110k at the time and £100k of investments, marginally under the £215k limit applicable at the time of his death in 1998) with my mother and other family members the beneficiaries. At the time this was considered to be an effective way of avoiding inheritance tax on my mother’s death. It was also seen as a way of skipping a generation if desired. There has been a distribution to one beneficiary of around £50k.
My mother’s still around (good news of course!) and her estate is worth about £325k. However given the nil rate band transfer between spouses now available I was wondering whether the trust is still the right thing to have, as it is a bit of a hassle in some ways and income is taxed at the higher trust rate. Of course it may be irreversible anyway.
I have a second albeit linked point. My mother is in line to inherit around £50k which would as things stand take her over the IHT limit. Are there any straightforward ways to avoid this?
Grateful for any comments.

Anthony Nixon
Posts:260
Joined:Wed Aug 06, 2008 2:18 pm

Re: IHT Allowance transfer

Postby Anthony Nixon » Mon Feb 14, 2011 10:21 am

The trust was the right thing to do at the time. Nobody could foresee the nil rate band. Unfortunately it does mean you can't get any more than a very small extra nil rate band on your mother's death.

I wouldn't cancel the trust altogether. You don't want to put the assets back into your mother's estate, but I suspect you still want her to be able to benefit.

You can now simplify the income tax position by making a change to the trust which gives her the right to the income.

As regards your mother's inheritance, the sensible planning is for to make a variation of her inheritance within two years of the death of the person from whom she inherits. Once again this can go to a trust from which she can continue to benefit, without the assets being treated for IHT as belonging to her. You have to wait after the two years from the death before giving her the right to the income.

Anthony Nixon CTA TEP Solicitor
Partner, Thomas Eggar LLP, Southampton and Chichester
anthony.nixon@thomaseggar.com
023 8083 1224

Bedfordboy
Posts:2
Joined:Sun Feb 13, 2011 8:37 pm

Re: IHT Allowance transfer

Postby Bedfordboy » Mon Feb 14, 2011 11:17 am

Thanks for the reply Anthony.
In terms of a variation in respect of the £50k inheritance, can the beneficiary act independently within the two years to effect it, and if so how is it done, or does it have to be agreed by all the beneficiaries? Given the relatively low inheritance sum, and the costs of setting up and administering trusts, might it be better just to vary it and pass it directly to other family members of my mother's choosing? Clearly in doing this it is accepted that my mother would of course be giving up any rights to the capital as well as any income it generates.


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