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

New IHT nil rate band.

nokka
Posts:12
Joined:Wed May 16, 2012 12:16 pm
New IHT nil rate band.

Postby nokka » Tue Feb 28, 2017 1:08 pm

I have read that using Trusts may alleviate, or cancel, some of the extra £100,000 NRB for direct descendants, though am struggling to understand in what way.

2 scenarios - one for my family - one for my wife's:

Scenario 1. Mother died many years ago and 50% of residential property passed under terms of Will to children. Other 50% retained by father who continues to live there. The 50% of the property owned by children is effectively in Trust. If father dies after 5 April will his estate receive the full new £425,000 NRB ?

Scenario 2: Father died some years ago. A Trust was set up prior to death meaning up to the then current NRB went into trust (seems some discretion as to what assets are in the trust, but includes half the residential property). Mother continues to live in property and children will inherit on her death.

Will these estates benefit from the new NRB or do the trusts intefere with it in some way ?

maths
Posts:8430
Joined:Wed Aug 06, 2008 3:25 pm

Re: New IHT nil rate band.

Postby maths » Tue Feb 28, 2017 2:37 pm

Scenario 1. Mother died many years ago and 50% of residential property passed under terms of Will to children. Other 50% retained by father who continues to live there. The 50% of the property owned by children is effectively in Trust. If father dies after 5 April will his estate receive the full new £425,000 NRB ?
I assume you are referring to the newly introduced residence nil rate band (RNRB).

On father's death he will be entitled in principle to the RNRB for the tax year of death multiplied by two as mother did not make use of her RNRB (as it hadn't been introduced at that time). EG death in tax year 17/18 gives father a RNRB of £200K.
Scenario 2: Father died some years ago. A Trust was set up prior to death meaning up to the then current NRB went into trust (seems some discretion as to what assets are in the trust, but includes half the residential property). Mother continues to live in property and children will inherit on her death.
Mother, as for father above, will be entitled to twice the RNRB for the tax year of death.

The issue concerning trusts refers to the fact that on death if the deceased left their interest in the residence on a discretionary trust then as such a trust does not qualify as a lineal descendant of the deceased there is no entitlement to the RNRB.

nokka
Posts:12
Joined:Wed May 16, 2012 12:16 pm

Re: New IHT nil rate band.

Postby nokka » Tue Feb 28, 2017 3:17 pm

Thank you, Maths. On the face of it that's better than expected. Mother died in the early 90s - used her NRB at the time (or at least some of it), but you are correct didn't use the RNRB as it didn't exist. I hadn't thought that may also be used so that's most definitely a bonus, if that's the case. Seems a strange calculation though - if father happened to die prior to April then he would get £325,000 NRB plus no more of mother's. But that would then increase after April 6 by £100,000 for him and theoretically £100,000 for her - even though she died so many years ago. That continues on until £500,000 each if he lives to 2021. Is that right ?

I understand why discretionary trusts are causing issues for some now and can see that possibly isn't something we need concern ourselves with. Best to check the type of trust set up I guess.

maths
Posts:8430
Joined:Wed Aug 06, 2008 3:25 pm

Re: New IHT nil rate band.

Postby maths » Tue Feb 28, 2017 4:05 pm

Post 6.4.20 the RNRB is 175k. Thus in your example the RNRB would be twice i.e. 350k. The nil rate band at 325k gives 675k aggregate.

The RNRB can only be used against the death estate.

AGoodman
Posts:1420
Joined:Fri May 16, 2014 3:47 pm

Re: New IHT nil rate band.

Postby AGoodman » Wed Mar 01, 2017 10:20 am

I believe that if somebody dies prior to 5/4/17, the amount of RNRB that can be transferred to their surviving spouse is limited to £100,000, even if the surviving spouse dies after 2020.

So for the above example, the total RNRB would be £275k after 2020 and the aggregate would be £600k.

AG

maths
Posts:8430
Joined:Wed Aug 06, 2008 3:25 pm

Re: New IHT nil rate band.

Postby maths » Wed Mar 01, 2017 11:19 am

I believe that if somebody dies prior to 5/4/17, the amount of RNRB that can be transferred to their surviving spouse is limited to £100,000, even if the surviving spouse dies after 2020.
This is incorrect.

The transferable RNRB like the NRB is based on % not absolute amounts.

Thus, for a death pre 6.4.17 although I agree the RNRB is deemed to be £100k, if it isn't used (and it can't be as the legislation was not in force pre 6.4.17) then 100% of the RNRB applicable at the date of death of the surviving spouse is transferable ie £350k post 5.4.20 [s8D(5)(f) and 8G(3)].

nokka
Posts:12
Joined:Wed May 16, 2012 12:16 pm

Re: New IHT nil rate band.

Postby nokka » Wed Mar 01, 2017 12:34 pm

Is the RNRB only available on more expensive properties ? In my example father's house worth probably £400,000 - but 50% of that was willed by mother to children when she dies. His share therefore currently worth £200,000. He has other assets, savings etc which take his estate into IHT. Because his property is worth what it is will his estate not benefit from the increase ? (He is to leave all estate to direct descendants)

nokka
Posts:12
Joined:Wed May 16, 2012 12:16 pm

Re: New IHT nil rate band.

Postby nokka » Wed Mar 01, 2017 12:35 pm

Soorry - should say 'when she died'

cliffordpope
Posts:81
Joined:Thu Jun 24, 2010 8:45 am

Re: New IHT nil rate band.

Postby cliffordpope » Wed Mar 01, 2017 4:04 pm

Could someone elaborate on the point at which a will trust becomes a discretionary trust?

Presumably a trust that leaves an interest in a house to the survivor in trust for the children on survivor's death is not caught by the restriction if the house then passes absolutely to the children?
But if the estate including house is left in trust to children with an element of discretion to the executor as to apportionment, eg with reference to needs etc of the individuals, then is that a discretionary trust even if it is not called one?
Supposing the estate can if desired continue to be held in trust but not immediately distributed to beneficiaries - eg they keep the house as a family holiday home, would that count?

AGoodman
Posts:1420
Joined:Fri May 16, 2014 3:47 pm

Re: New IHT nil rate band.

Postby AGoodman » Wed Mar 01, 2017 5:17 pm

Maths - quite right. Just when I think I have got my head around the RNRB rules, I come across something else...

AG


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