IHT: NRB Discretionary Trust amounts & dissolving

phonek
phonek Posts: 30
First Post
Forumite
Trying to understand how IHT (inheritance tax) will work in relation to a previously created Nil Rate Band Discretionary Trust (NRBDT). 

My father died suddenly in January 2005, leaving my still alive mother his estate. At the time a NRBDT was created with £263k within it (the IHT threshold in Jan 2005), via a Deed of Variation procedure. 

I'm trying to work out how this NRBDT fits-in with the current IHT thresholds should my mother pass away (obviously the figures could change, but it's the principle I need to understand) – both standard NRB (nil rate band) and RNRB (Residence nil rate band) thresholds.

Because I can see it being any of four possibilities for the amount protected from IHT: 

#1. 763k total: 500k mum (325k NRB+175k RNRB) + 263k dad (263k NRBDT). 
#2. 938k total: 500k mum (325k NRB+175k RNRB) + 438k dad (175k RNRB+263k NRBDT). 
#3. 1m total: 500k mum (325k NRB+175k RNRB) + 500k dad (325k NRB+175k RNRB). 
#4. 1.263m total: 500k mum (325k NRB+175k RNRB) + 763k dad (325k NRB+175k RNRB+263k NRBDT). 

Can someone advise which it is, #1/2/3/4? 


EDIT: fixed the figures, so hopefully accurate now, thanks! 

Comments

  • The NRB trust would have used his entire NRB so that can’t be transferred to her estate, which leaves £675k exemptions (her NRD plus 2 RNRBs). At the time it would have been a sensible option but once the transferable NRB came in two years made this type of trust obsolescent for most purposes.


  • phonek
    phonek Posts: 30
    First Post
    Forumite
    edited 20 December 2023 at 12:46PM
    The NRB trust would have used his entire NRB so that can’t be transferred to her estate, which leaves £675k exemptions (her NRD plus 2 RNRBs). At the time it would have been a sensible option but once the transferable NRB came in two years made this type of trust obsolescent for most purposes.
    Many thanks for replying. 

    So #2 then: "938k total: 500k mum (325k NRB+175k RNRB) + 438k dad (175k RNRB+263k NRBDT)". 

    I thought this might be the case. But that raises an obvious question... 

    Is it possible to dissolve an NRBDT (ours being 263k) to instead take advantage of the higher transferable non-Trust NRB threshold now available (currently 325k; thus 62k higher)?
    i.e. Effectively being back in the position we would have been in if we had done nothing at all back in 2005 (option #3 above; 1m). 

    Surely thousands of people would have taken out NRBDT's before the increasing of thresholds made possible by newer transferable NRB's from 2007. So are we all effectively being punished for having done so, given we may potentially be locked into NRBDT's at lower thresholds. 

    I'm hoping the 'discretionary' nature of said Trusts means this is possible? No doubt there are some downsides too though (eg. perhaps keeping the NRBDT funds outside of care costs assessments should they ever arise, or suchlike?). 

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