Trusts and IHT205 Q4 or IHT400

[wildcloud]

Aiming to complete the correct form for my late father's estate. I've got to Q4 of IHT205. I'm trying to clarify the question:

"Did the deceased have the right to receive the benefit from any assets held in a trust that were treated as part of their estate for Inheritance Tax purposes?"

The house my father lived in was owned 50% by him and 50% in a NRB trust set up upon the death of my mother 20 years ago (tenants in common). My father, myself and my sister are all trustees. Myself and my sister are equal beneficiaries of my father's will and, now that he has passed away, Mum's will trust. My reading of this is that the assets held in trust are the estate of my mother for inheritance tax purposes and therefore I can carry on with IHT205. Is this correct? (Or wishful thinking!)
Many thanks

[AGoodman]

The issue is whether your father had an "interest in possession" in the trust assets. If he had an interest in possession, the trust fund would be treated as part of his estate for inheritance tax (and you would have to answer "Yes").

This could arise if:

- he has a right to occupy the property under the terms of the trust
- he has a right to income from the trust
- in some situations HMRC might argue that occupying the property amounts to a de facto interest in possession but this is generally thought to be wrong.

A NRB trust is usually discretionary, meaning that the trustees can benefit your father (as they have) but he has no right to benefit; so the answer would usually be No. However, it does of course depend on the terms of your trust and the particular facts.

[wildcloud]

This could arise if:

- he has a right to occupy the property under the terms of the trust
- he has a right to income from the trust
- in some situations HMRC might argue that occupying the property amounts to a de facto interest in possession but this is generally thought to be wrong.

Many thanks for the reply.
I do not think the first two are the case looking back at the paperwork history.
There does not appear to be any right to occupy or to income in the will.

The occupance permission from the trust is discretionary:

Trustee resolution
"....the will confers on us the power to allow a beneficiary to occupy the property"
"We (trustees) have determined to allow ____ to occupy the property..."

Your third bullet point is one that may well be beyond our ability to plan for.
Thank you