NRB Discretionary Trust, Indexing Etc.

[langtonbrow]

Hello,

A question on NRB trusts, once loved, now problematic.

On death in 2003 my father realised a nil-rate band discretionary trust of £240,000.
The assets within that trust now have a book value of around £400,000.
My mother also has a further £550,000 of assets and presumably IHT allowance of £325,000 plus PPR of £175,000 (half of the house, the other half being in the NRB trust).

My questions
Is the £240,000 allowance in any way index linked?
If not then is it reasonable to assume the tax position on death would be £160,000 from the NRB trust and £50,000 in excess of personal relief. Hence 0.4 x of £210,000 equals £84,000?

Are there any vehicles open to further minimising the position given my mothers age of late 80’s?

thanks
P

[maths]

On death was father's interest of 50% in, presumably the family home, placed into the nil rate band discretionary trust?

OR did his wife take his 50% interest in the home (so she now owns 100%) in exchange for her issuing an IOU to the trustees OR allowed them to take a charge over the property?

[langtonbrow]

The fathers interest was 50%.

[langtonbrow]

I should add that yes it was 50% of family home added into NRB discretionary trust

[AGoodman]

The trust is outside of the estate so there should not be any inheritance tax on your mother's death - there may be a risk if the trustees did not document her use of the property properly or HMRC just decide to have a crack at it. There will be anniversary charges (possibly in 2013 but definitely in 2023) and exit charges when the trust is wound up. These will be calculated on the basis of the nil rate band at the time, currently £325k

Your mother's personal estate benefits from her personal NRB (£325k), RNRB (£175k) transferred RNRB (£100k - i think - i always get this wrong)

Mother has a personal tax allowance of up to £600k but the RNRB and TRNRB are capped at the value of her 50% interest in the home. ie if her interest was £200k, her total nil rate band is £525k. Everything over this is taxed at 40% so £10k of tax on your values.

The whole picture will be different if HMRC argues that your mother has a de facto interest in possession in the house although I don't think this is common.

Inheritance tax around trusts is tricky (particularly with the RNRB) so i'd strongly recommend getting some proper advice. If the trust value was over £260k in 2013 then you might have had/have an obligation to file an inheritance tax return then - if it was over £325,000 then there would have been tax to pay.

[langtonbrow]

Many thanks for taking the time to clarify a few points. Great to hear that all trust elements are effectively separated. There was tax paid in 2013 and as you mention every decade thereafter.

Wasn't aware of the transferable NRB. That also helps. I should add that my mother now owns a quarter share, myself having bought a quarter off of her to redevelop the property to contain a "granny annexe". Would that impact "de facto interest in possession" in the house"?

The non-property asset side, limited to £325K tax free, means that there is most likely an advantage in minimising tax incidence. I guess crystal balls are required on the position of IHT post spring statement. I'm thinking Anti IHT AIM shares seem like a possible solution to syphon off some of the extra, but not without some risk on several fronts.

with regards