Nil rate band will trust never set up

[Incredulum]

As so often, there’s probably no right answer. I am hugely appreciative of your various thoughts. Summarising:

1. TNRB. This seems at best difficult, requiring (Anthony) ‘argument’ or at worst (Lee Young) ‘impossible’. There seems no benefit to trying for a course of action that is potentially difficult.
2. Appointing the house to the surviving spouse would mean that Spouse 1’s NRB had never been used. (I mean ‘Used’ in a way that was beneficial to the family, for all that it had been used up for TNRB purposes.)
3. The trust was created at the date of death which is something over 10 years ago.
4. The only questions therefore are (a) what was put into the trust ; and (b) when did it go in. Here I suspect one of the following two will have happened.

Either, take the 225k as having gone in at the date of death, and accept the late filing penalty – which I think is 3k? – on the grounds that the value at the 10-year date was in excess of 80% of £325k, so there was a reporting obligation, but not in excess of 325k so no tax liability. That said, is there an obligation for a professional valuation at the ten year point? HMRC are scarcely likely to bring in the DV in order to dispute the £260k threshold just for the sake of a 3k penalty, are they?

Or take the 225k as going in now. And for this, what paperwork do you think we need? Just a declaration of bare trust by Spouse 2 regarding their interest in the relevant proportion of the house. Does this give rise to an SDLT liability as there is a transfer of real estate in settlement of a debt?

« Anthony « I am assuming that the tenancy had been severed as well

Please would you clafiry what you mean by this. (No, it was not a joint tenancy.) And on what basis would the trust and Spouse 2 own the property? Joint tenants? Tenants in common? In the event of a joint tenancy would the survivorship rules work to transfer it to the trust on death? Thus allowing it to be sold before probate to settle the IHT bill?

Thanks again.

[Incredulum]

As so often, there’s probably no right answer. I am hugely appreciative of your various thoughts. I have labelled the questions below in brackets from <A> to <F>. Summarising:

1. TNRB, courtesy of s144, which was where I started. This seems at best difficult, requiring (Anthony) ‘argument’ or at worst (Lee Young) ‘impossible’. There seems no benefit to trying for a course of action that is potentially difficult when it seems there are alternatives.
2. Appointing the house to the surviving spouse would mean that Spouse 1’s NRB had never been used. (I mean ‘Used’ in a way that was beneficial to the family, for all that it had been used up for TNRB purposes.)
3. The trust was created at the date of death which is something over 10 years ago.
4. The only questions therefore are (a) what was put into the trust ; and (b) when did it go in. Here I suspect one of the following two will have happened.

Either, take the 225k as having gone in at the date of death, and accept the late filing penalty – which I think is 3k? – on the grounds that the value at the 10-year date was in excess of 80% of £325k, so there was a reporting obligation, but not in excess of 325k so no tax liability. <A> That said, is there an obligation for a professional valuation at the ten year point? <B> HMRC are scarcely likely to bring in the DV in order to dispute the £260k threshold just for the sake of a 3k penalty, are they?

Or take the 225k as going in now. <C>And for this, what paperwork do you think we need? Just a declaration of bare trust by Spouse 2 regarding their interest in the relevant proportion of the house.

<D> Does this give rise to an SDLT liability as there is a transfer of real estate in settlement of a debt?

<E> What if the only asset of the trust is a non-interest-bearing loan to Spouse 2; does this work in the way it was always intended – for all that the beneficiaries have lost out on the uplift.

I am also assuming that the tenancy had been severed as well (assuming being a dangerous thing). Obviously if it was a joint tenancy it would automatically pass through survivorship, rather than via the trust anyway.

<F> Please would you clafiry what you mean by this. (No, it was not a joint tenancy.) <G> And on what basis would the trust and Spouse 2 own the property; Joint tenants or tenants in common? In the event of a joint tenancy would the survivorship rules work to transfer it to the trust on death? Thus allowing it to be sold before probate to settle the IHT bill.

Thanks again.

[AnthonyR]

Re-opening this after a while...

A> No 'obligation' but you want to be able to provide evidence of the value at that point in time (see B below).
B> HMRC aren't known for their commerciality, so there is always a risk that they could seek to dispute the value. However, if there is unlikely to be any tax at stake it's probably less likely that they'd challenge any value that looked reasonable.
C> My view on this is that it was either in on death or it wasn't in at all. Others may argue!
D> Transfer on death wouldn't trigger SDLT. Transfer of a share in the equity I believe would trigger SDLT if it is in settlement of the debt, however, I'm not an SDLT expert.
E> I've seen these NRB trusts which are actually a secured interest free debt, rather than a share in the property. These work for IHT purposes (assuming debt is settled on death), but are fixed in value so don't grow with the property.
F> If the property tenancy wasn't severed and it was held as a Joint Tenancy then the property share will pass via survivorship and bypass the Will/Trust regardless.
G> If the property ownership is 50:50 then it may be possible to join(?)/unsever the tenancy which would, as you say, bypass probate. Details on this can be found here:

https://www.gov.uk/joint-property-owner ... nt-tenants