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Matthew Hutton MA, CTA (fellow), AIIT, TEP reports on Inheritance Tax planning points concerning the transferable nil rate band between spouses and civil partners, and Immediate Post-Death Interest Trusts.  

The Transferable Nil-Rate Band: Maximising the Benefits

Example

Jason, a widower, has just remarried Judith, a widow.  Both deceaseds' first spouses left everything to the survivor.  In drafting Jason’s Will does not leave everything to Judith.

The ideal IHT planning

1.  To use Jason and his first wife’s NRBs, Jason’s will (and Judith’s in mirror image form) would leave on discretionary trusts ‘an amount equal to the largest amount that can pass without payment of IHT’, with residue to Judith.  Consider what assets might usefully be comprised within the discretionary trust – perhaps a debt or charge arrangement?  However, the trust will suffer IHT exit and ten year charges because more than a single NRB has been settled.  Hence –

2.  Modify (1) by the use of pilot trusts, which must be created before the Wills.  The Will would leave to each of two pilot trusts, made on different days, ‘an amount equal to the NRB in force at my death’, with residue to the surviving spouse.  This avoids the problem of too valuable a discretionary trust.  Further, the nil-rate band could be split equally between two pilot trusts, say a total of four, in order to give room for future growth within the nil-rate band.

What happens if a NRB discretionary trust is not wanted?

The trust can be unscrambled within two years of death by using IHTA 1984 s144 (being careful to avoid the three month ‘Frankland’ trap).  Even in 2. above the pilot trusts other than the initial £10 can be unscrambled.

Do ensure that the pilot trust is properly constituted with say £10.

(IIR’s HINWIs Conference 19 November 2008, lecture by Chris Whitehouse)

Note that the Trusts Discussion Forum has run a recent thread on constituting the pilot trust, given the desirability of not having an ongoing bank account producing small amounts of interest.  I must confess that I don’t much like the IOU idea.  Rather I prefer the settlement of a nominal sum which could be used to pay not so much the initial costs of establishing the trust (which should be down to the settlor), but rather ongoing administration costs which are a proper expense of the trustees.

Immediate Post-Death Interests (IPDIs) – Achieving IHT Efficiency in the Context of GWR

Context

The introduction in 2006 of FA 1986 s 102ZA blocked the formerly common stratagem of depriving a surviving spouse of most of her interest in possession in the deceased husband’s Will trust, but allowing her to continue to enjoy the property so making a PET with - it is hoped - survival for seven years.  That arrangement has now been blocked.  However, the legislation leaves open an intriguing possibility.

An example

Fred died leaving his second wife Tina an IPDI over his residuary estate including the property ‘Donroamin’ of which Fred had been the sole owner.  The trustees have taken the following steps:

(a) carved out a 20 year rent-free lease to a nominee; and

(b) appointed the (encumbered) freehold interest to Fred’s children by his second marriage, in equal shares absolutely.

Tina makes a PET, but is free to continue in occupation of the property without a reservation of benefit.  Note the potential CGT downside if the property is to be sold after Tina’s death, as the children would have acquired it at a heavy discount of say 50%.  During her lifetime, however, it is agreed by everyone that the house will not be sold.

The important point is that under the Will trust of Donroamin Tina does not benefit from the fund holding the freehold interest for Fred’s children.  And after seven years the PET becomes exempt.

It has to be said that this idea will be possible in limited situations only.  The first to die needs to own the whole property and a mortgage might make things difficult.  A lease cannot be granted in a half share.

(IIR’s HINWIs Conference 19 November 2008, lecture by Chris Whitehouse)

What is MTR?

MTR is a 90 minute monthly training course, held in London, Ipswich and Norwich – as well as a reference work.  Each Issue records the most significant tax developments over a wide range of subjects (see below) during the previous month, containing 30 to 40 items.  The aim is not necessarily to take the place of the journals, but rather to provide an easily digestible summary of them and, through the six-monthly Indexes, to build up, over the years, a useful reference work. 

The first aim, therefore, of MTR is to inform.  The second and subsidiary aim is to provide a monthly forum for the discussion of issues that tend to come up in professional practice, largely, though not exclusively, prompted by specific items in MTR.

Who should come to MTR? Does it attract CPD?

MTR is designed not primarily for the person who spends 100% of his/her time on tax, but rather for the practitioner (whether private client or company/commercial) for whom tax issues form part of his/her practice.  Attendance at MTR qualifies for 1.5 CPD hours for members of the Law Society, for 1.5 CPD points for accountants (if MTR is considered relevant to the delegate’s practice) and (subject to the individual’s self-certification) should also count towards training requirements for the CIOT.  For STEP purposes, MTR qualifies for CPD in principle, on the grounds that at least 50% of the content is trust and estate related.  
 
What is the content of MTR?

The material is drawn from HMRC press releases, Tax Bulletins, VAT business briefs, case reports and articles in the professional press.   Each item carries a reference as to source which can be followed up if necessary. 

The logic of the ordering of the 12 sections is as follows: first, Capital Taxation (viz 1. Capital Gains Tax, 2. Inheritance Tax and 3. Stamp Taxes).  Second, Personal Tax (4. Personal Income Tax).  Third, Business Related Matters (viz, 5. Business Tax, 6. Employment, 7. National Insurance and 8. VAT & Customs Duties).  And fourth, Miscellaneous (viz 9. Compliance, 10. Administration, 11. European and International and 12. Residue).     An annual binder is provided within the subscription cost.

Despite an inevitable element of selectivity, MTR aims to be catholic in its coverage – and this is reflected in the presentations where appropriate: there may well be NI, VAT or employment tax points of which the person advising mainly on estate planning (for example) should at least be aware.  That said, the London sessions at least tend to focus, by majority request, on estate planning issues: it is possible that in future one of the sessions might be geared more to company/commercial matters. 

How is MTR circulated?

The Notes are emailed to each delegate in the week before the presentations (and thus can easily be circulated around the office), with a follow-up four or five pages of practical Points Arising during the various sessions (whether in London, Ipswich or Norwich).

When and where is MTR held?

The London meetings take place at the National Liberal Club, One Whitehall Place, London SW1, on either the first or second Tuesday of the month, generally in the David Lloyd George Room.  There is a choice of four sessions: 9.00 - 10.30 (3 places available), 11.00 – 12.30 (6 places available), 1.00 – 2.30 (8 places available) and 4.00 – 5.30 (3 places available).

The Ipswich meetings take place generally on the first or second Wednesday of the month at the offices of Pretty’s solicitors 45 Elm Street, Ipswich 5.00 – 6.30pm (5 places available). 

The Norwich meetings take place at the Norfolk Club, Upper King Street, Norwich on the first or second Thursday of the month from 5.30 – 7.00pm (3 places available). 

Dates are fixed up to a year in advance and any one delegate from a firm can take up the firm’s place each month.  Attendance is limited to no more than 30 delegates in London and 25 delegates in Ipswich and Norwich (to make for ease of round table discussion).  The cost in London is £60 plus VAT, and in Ipswich and Norwich £50 plus VAT (billed every six months in advance).

How do I find out more?

For further details, visit http://www.matthewhutton.co.uk/ on Conferences & Seminars and then Monthly Tax Review – or e-mail Matthew on mhutton@paston.co.uk.

For those whose firms unable to make the monthly seminars but wishing to order MTR as 'Notes Only' (at £180 per annum for the 12 issues, invoiced six-monthly in advance), visit  our sister site, TaxBookShop.com:
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