IHT implications = Trust

nxdmsandkaskdjaqd

I am wishing to understand the rules and implications of establishing a Trust within a will and any IHT implications. So have a hypothetical scenario:

Husband and wife with only one residence of value £1,000,000, set-up as Tenants in Common. Tenants in Common and Wills set up and signed in 2017

Joint Wills with the Trust leaving the prevailing Nil-Rate Band (currently £325K) of the house to the only child.

NOTE: I understand that the Nil-Rate Band is only applicable, as the New Residence Nil Rate Band (RNRB) of £175,000 by 2020 does not apply, as a Will that relies on such a trust will not qualify for the RNRB because the beneficiary is a trust, not a child.

The husband dies in tax year 2020 to 2021, resulting in the house being structured as per the Will (32.5% to the only child and the remaining 67.5% to his wife).

With the above hypothetical scenario, is there any IHT liability with leaving the 32.5% to the only child?

I believe the Trust referred to above is called “Life Interest Trust also known as an Interest in Possession Trust” is that correct?

I appreciate that the advice of a solicitor is required, but I need to establish in my own mind some of the possible implications.

getmore4less

you are talking about an immediate post death interest in possession trust. (IPDI is what you google, loads of example on how they work.).


Basically the IHT and CGT position on those is as if the house was inherited by the survivor with the life interest, if a spouse they keep the transferable nil rate band and can still use both RNRB.

Yorkshireman99

nxdmsandkaskdjaqd wrote: »

I am wishing to understand the rules and implications of establishing a Trust within a will and any IHT implications. So have a hypothetical scenario:

Husband and wife with only one residence of value £1,000,000, set-up as Tenants in Common. Tenants in Common and Wills set up and signed in 2017

Joint Wills with the Trust leaving the prevailing Nil-Rate Band (currently £325K) of the house to the only child.

NOTE: I understand that the Nil-Rate Band is only applicable, as the New Residence Nil Rate Band (RNRB) of £175,000 by 2020 does not apply, as a Will that relies on such a trust will not qualify for the RNRB because the beneficiary is a trust, not a child.

The husband dies in tax year 2020 to 2021, resulting in the house being structured as per the Will (32.5% to the only child and the remaining 67.5% to his wife).

With the above hypothetical scenario, is there any IHT liability with leaving the 32.5% to the only child?

I believe the Trust referred to above is called “Life Interest Trust also known as an Interest in Possession Trust” is that correct?

I appreciate that the advice of a solicitor is required, but I need to establish in my own mind some of the possible implications.

You need an IHT and trust specialist not a run of the mill solicitor. Find a solicitor who is a STEP member who will know much more.

nxdmsandkaskdjaqd

Thanks, yes I was aware of STEP and have a local company who is a member.

So based on my readings of IPDI trusts and my above hypothetical scenario, no IHT is due until the death of the second partner.

Keep_pedalling

I thought the sort of trust you are talking about became obsolete for married couple when the transferable nil rate band came in.

The usual reason for using tenants in common is to protect half the house from being gobbled up in care costs for the surviving spouse, but that is not really nessasary on a property of this high value, so why complicate things?

Are there substantial liquid assets that would currently fall into the estate?

nxdmsandkaskdjaqd

Keep_pedalling wrote: »

The usual reason for using tenants in common is to protect half the house from being gobbled up in care costs for the surviving spouse, but that is not really nessasary on a property of this high value, so why complicate things?

Are there substantial liquid assets that would currently fall into the estate?

This is not being considered for Care Home implications, but protecting my son should the wife remarry.

There are other assets, pensions, ISA, cash, etc.

Do you have another possible solution?

Keep_pedalling

nxdmsandkaskdjaqd wrote: »

This is not being considered for Care Home implications, but protecting my son should the wife remarry.

There are other assets, pensions, ISA, cash, etc.

Do you have another possible solution?

With an estate this size, and the slightly complex family setup, the only option is to to take good professional advice.