Residence Nil-Rate Band for Inheritance Tax

MartinW6

I've read that the Residence Nil-Rate Band coming in on April 5th (which increases the tax-free IHT by £100,000) does not apply to wills where property is put into a Discretionary Trust. My dad passed away in 2014, and his half of the estate was put into trust - to be distributed to me upon my mother's death. I have no idea if this means the RNRB does or doesn't apply to my mother's will.

Can anyone shed some light on this?

Many thanks.

HappyHarry

MartinW6 wrote: »

I've read that the Residence Nil-Rate Band coming in on April 5th (which increases the tax-free IHT by £100,000) does not apply to wills where property is put into a Discretionary Trust. My dad passed away in 2014, and his half of the estate was put into trust - to be distributed to me upon my mother's death. I have no idea if this means the RNRB does or doesn't apply to my mother's will.

Can anyone shed some light on this?

Many thanks.

Providing your mother currently owns £100,000 of the property, and her will leaves her assets to her children (and / or other direct descendants) then her estate will benefit from her nil rate band (£325,000) and her residence nil rate band (£100,000 from 6 April 2017 rising to £175,000 by 2020).

Just to add, if the total estate exceeds £2m then the residence nil rate band gets tapered away.

Your late father's nil rate band is more complex.

Anything left to the discretionary trust has already used up part or all of your father's nil rate band. If part of the property was left to the trust, then this can not qualify for residence nil rate band, as a discretionary trust is not a direct descendant.

There is lots of useful information here:

https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band

getmore4less

if the father never used his RNRB(could not have done it did not exist) then it is probably transferable so mum gets £200k rising to £350k.

What sort of trust?
are you sure it was discretionary and not an interest in possession(mum can live in the place) then the full value may be included in her estate.

xylophone

If the interest must pass to the OP then is this a "discretionary" trust?

getmore4less

xylophone wrote: »

If the interest must pass to the OP then is this a "discretionary" trust?

That can[STRIKE] also[/STRIKE] apply to a interest in possession trust.

OP needs to clarify.

(mis read the question so struck out "also"

MartinW6

getmore4less wrote: »

if the father never used his RNRB(could not have done it did not exist) then it is probably transferable so mum gets £200k rising to £350k.

What sort of trust?
are you sure it was discretionary and not an interest in possession(mum can live in the place) then the full value may be included in her estate.

From the wording, it seems to be an interest in possession trust (i.e. mum can live in the house).

The interest in the house must pass to me, or if I'm not around, my children.

When mum passes, I'm guessing her half of the estate won't actually go into trust as this would only happen if dad was still with us.

Am I just over-reacting because the term 'Trust' is used in the will? Just felt it was worth checking and not assuming.

Thanks for all your help so far everyone. Much appreciated.

getmore4less

It can be confusing as everything in an estate is in a trust during administration, some gets distributed some may have conditions or get put in other trusts.

Worth familiarizing yourself with what is in place and how the IHT works for interest in possession, also it changes the CGT position for your share form what it would be if you really owned part of the house.