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Where Taxpayers and Advisers Meet

Settlor interested Trusts

Andrew01
Posts:26
Joined:Wed Aug 06, 2008 3:27 pm
Settlor interested Trusts

Postby Andrew01 » Tue May 03, 2022 12:19 am

Hello IHT forum

Regarding IHT and settler interested relevant property trusts.

The settlor places his PPR on trust, therefore there is a GWR so it is a settlor interested Trust, how does this scenario work for IHT?
So assuming the settlor has a full NRB available any settled property exceeding £325,000 will be CLT at 20% IHT.
If the settlors PPR was valued at £400,000 there would be an immediate £15,000 of CLT IHT due.
The IHT periodic charge is also due every 10years...

1, When the settlor dies is the CLT and Prerodic IHT he has already paid available as a relief on any IHT due above the NRB at that time?
IHT due if he had not made the settlement, (PPR value on death-NRB) x 40% =X
IHT already paid, CLT IHT + Periodic IHT =Y
X-Y=IHT due on the estate?

2, And what about the RNRB if the settlor leaves the property to direct descendants?
If the settlor had not placed PPR on trust he may not have paid any IHT on his home if the value of his PPR on death is below the RNRB+NRB.
Can the Trustees reclaim the CLT IHT and periodic IHT already paid?

I believe the tax system is not as generous as my formulas above

Thanks in advance
Andrew

maths
Posts:8447
Joined:Wed Aug 06, 2008 3:25 pm

Re: Settlor interested Trusts

Postby maths » Wed May 04, 2022 7:54 pm

1, When the settlor dies is the CLT and Prerodic IHT he has already paid available as a relief on any IHT due above the NRB at that time?

No.

2, And what about the RNRB if the settlor leaves the property to direct descendants?

The settlor has settled the property on trust and as a beneficiary under the trust the gift is a gift with reservation. For an RNRB to be available on the settlor's death it would be necessary for the gift made by the settlor to be made to a lineal descendant which it was not; hence no RNRB.

Andrew01
Posts:26
Joined:Wed Aug 06, 2008 3:27 pm

Re: Settlor interested Trusts

Postby Andrew01 » Thu May 05, 2022 10:44 pm

Hello Maths

Thank you for your reply.

2, And what about the RNRB if the settlor leaves the property to direct descendants?

"The settlor has settled the property on trust and as a beneficiary under the trust the gift is a gift with reservation. For an RNRB to be available on the settlor's death it would be necessary for the gift made by the settlor to be made to a lineal descendant which it was not; hence no RNRB."

To clarify
So even if the settlor's home/property is left via the trust to a beneficiary who is a direct lineal descendant of the settlors, the RNRB will not be available?
As the home is now owned by the Settlement he made, but paradoxically for the IHT calculation, the value of his home is treated as part of his estate due to the GWR, but the RNRB is not made available.

maths
Posts:8447
Joined:Wed Aug 06, 2008 3:25 pm

Re: Settlor interested Trusts

Postby maths » Wed May 11, 2022 5:06 pm

So even if the settlor's home/property is left via the trust to a beneficiary who is a direct lineal descendant of the settlors, the RNRB will not be available?


Correct


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