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Where Taxpayers and Advisers Meet

IHT418

cjc
Posts:1
Joined:Fri Mar 12, 2021 4:49 pm
IHT418

Postby cjc » Fri Mar 12, 2021 5:07 pm

Hi,

My parents set up a trust in 2014 into which they transferred their property. My mother died in 2018 and my father late in 2020 and I'm in the process of preparing IHT400 and related schedules and am looking for some advice.

As the trust was set up in a way that places their interests as paramount, that they continued to live in the property until they died and took a rental income from part of the property my assumption is that they had interest in possession, that the trust is subject to IHT and that we can claim both NRRB.

Some questions:

Are these assumptions correct?
Do we need to fill out IHT403?
I thought we needed to fill out IHT418 but looking at question 1 I would say no to everything as the trust was post-2006, no to question 19 and then the form is effectively redundant, how do I represent interest in possession?

Thanks in advance.

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: IHT418

Postby AGoodman » Fri Mar 12, 2021 7:01 pm

The trust probably is an interest in possession (but somebody will need to check the terms to be sure), it is also a gift with reservation of benefit (GROB) and yes, it will be subject to IHT.

As the trust was established after 2006, the fact it was interest in possession is probably irrelevant. It will be subject to IHT because it was a GROB, not because they had an IIP.

Unfortunately the residential nil rate band cannot be claimed - this is a severe problem with this type of trust (along with the minor problem that nobody can ever quite remember why they entered into them in the first place). Each estate can claim the regular NRB and any left over can be transferred from your mother to your father - giving you a total of £650k tax free between them.

Also:

- the property in the trust will not benefit from the automatic capital gains tax uplift on the death of your parents so when you sell, the base cost will be the value in 2014 - it should get PPR for all or part if they lived there but a formal election will have to be made; and
- there may be an inheritance tax exit charge when the property (or proceeds of sale) are distributed from the trust but probably not.

Yes, you will need IHT403, no to IHT418 (as per IHT400 notes p.15)

This is complicated stuff so difficult to address in detail here. Professional advice should be sought (and I would suggest not from the person who recommended the trust in 2014).


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