IHT, Tenants in Common and Lifetime Interest

getmore4less

https://www.gov.uk/guidance/trusts-and-inheritance-tax#dealing-with-a-trust-when-someone-dies

See 3.

life interest trust RNRB transferable.

If a home is put into an interest in possession trust at the time someone dies, the additional threshold will available for their estate if the person who benefits from the trust is their direct descendant.

If the beneficiary is not a direct descendant, the estate will not qualify for the additional threshold. In that case the unused additional threshold would be available to transfer to a surviving spouse or civil partner’s estate.


Example
Mr H died in the tax year 2017 to 2018. He left a house worth £350,000 to his wife in a trust, for her benefit whilst she’s alive.

His will directed that the house will go to their children when his wife dies.

The additional threshold for Mr H’s estate is nil because he left the house to his wife. The threshold available for transfer is 100% because none has been used.

When Mrs H dies in tax year 2020 to 2021, the house, now worth £400,000, passes to their children.

A claim is made to transfer any unused additional threshold from Mr H’s estate.

You work out the additional threshold available on Mrs H’s estate as follows:

Mrs H’s own additional threshold.........£175,000 (maximum additional threshold in tax year 2020 to 2021)
plus transferred additional threshold....£175,000 (100% x £175,000)
maximum additional threshold for Mrs H’s estate..£350,000

As the home passing to Mrs H’s children is worth more than the maximum available additional threshold of £350,000, Mrs H’s estate qualifies for the full £350,000 additional threshold.

getmore4less

Taking the 1/2 house out of the IPDI trust for the son to inherit directly will most likely make the IHT situation worse.

The RNRB gets used at current level and is not transfered to get the remaining uplifts(upto £50k+indexing from 2021 )
£125k of the regular nil rate band gets used leaving less to transfer.
(depends if there is any left we still don't know what is happening to the other assets)


Then if the son does not live there they are exposed to potential CGT, which the IPDI trust eliminates(up to value at second death).

badger09

getmore4less wrote: »

https://www.gov.uk/guidance/trusts-and-inheritance-tax#dealing-with-a-trust-when-someone-dies

See 3.

life interest trust RNRB transferable.

Thank you getmoreforless

That is what I was trying, unsuccessfully, to say in post 11

getmore4less

badger09 wrote: »

Thank you getmoreforless

That is what I was trying, unsuccessfully, to say in post 11

With the life tenant being the spouse the RNRB is not usable on first death so becomes transferable

On the second death the transferable RNRB is available for the spouse to use against any qualify interest they have that was going to a direct descendant.

in this case the spouse has 2 qualifying interests their share and the share in the trust as the are the same property they can be combined


The key is that on first death it is not a "use or lose" , it is a "use or transferable" then it becomes "use or lose"
(subject to the spouse not remarrying giving the opportunity for a further transfer.)

sacherlover

Yes, I wondered about Deed of Variation

My friend has now instructed the solicitors who wrote the Will (in 2010).

However, I don't know if they are IHT specialists or STEP qualified.

I'm just a little concerned that the solicitors said there MAY be no IHT on the house, but it depends on HMRC ruling. Would you expect an appropriately qualified solicitor to know for sure?

sacherlover

Surviving spouse owns 50% of house, other 50% left to wife's son with husband to have lifetime interest.

Significant savings: around 1/3 left to surviving spouse and rest divided amongst relatives.

Thanks for your posts.

sacherlover

Thank you all for your posts - aware of potential for Deed of Variation and mentioned that to my friend.

Will now ask him to check if solicitors are IHT specialists and if they are STEP qualified.

getmore4less

sacherlover wrote: »

Surviving spouse owns 50% of house, other 50% left to wife's son with husband to have lifetime interest.

Significant savings: around 1/3 left to surviving spouse and rest divided amongst relatives.

Thanks for your posts.

That's going to use up regular nil rate band, any deceased previous spouse?.

sacherlover

No previous spouse.