10 year anniversary IHT charges on Trusts Help Please

piggy

Any help with this would be appreciated. When my mother died  My mother left her Flat that she owned, in trust to my sister and I, who are both trustees and inherit it when my brother dies.. My brother is not a beneficiary, but has the right to live in the property until he dies. Should we both die before he dies then both my children and my sisters children would inherit the property on his death.

The value of my mothers property When she died in March 2016 was £132,000. As my brother has suffered with a psychiatric condition for most of his life and has been unable to work, we have never charged him any rent, as any housing benefit he would have claimed, would have reduced his other benefits which would have made it much harder for him to live and get by.

My brother lived in this property for 3 years and we have now sold it for £168,000 and bought another property in a better area for £220,000. This purchase was made with the proceeds of the sale plus a contribution made by my brother of £52,000 which was money left to him by my mother and did not form any part of the trust...He has now lived in both properies for nearly 10 years rent free.  My question is this. if the value of the property my brother now lives in, is  valued at £275,000  and as far as the 10 year trust revaluation is concerned, am I correct in assuming that as he now  has an equity interest in the property of £52000 and that the value which is to be assessed For IHTpurposes is £223,000 and not £275,000.Secondly  Has anyone any idea of how much tax we might be charged based on the information provided.ANy comments would be welcome

Keep_pedalling

This sounds like an immediate post death interest trust, which are not subject these charges.if IHT was due it would have been paid on her death. Although current legal ownership is with the trust, beneficial ownership is with your brother and it forms part of his estate for IHT purposes. 

When you purchased the new house did your brother place a charge on the property to protect his contribution or purchase as tenants in common between his and the trust?

poseidon1

piggy said:

Any help with this would be appreciated. When my mother died  My mother left her Flat that she owned, in trust to my sister and I, who are both trustees and inherit it when my brother dies.. My brother is not a beneficiary, but has the right to live in the property until he dies. Should we both die before he dies then both my children and my sisters children would inherit the property on his death.

The value of my mothers property When she died in March 2016 was £132,000. As my brother has suffered with a psychiatric condition for most of his life and has been unable to work, we have never charged him any rent, as any housing benefit he would have claimed, would have reduced his other benefits which would have made it much harder for him to live and get by.

My brother lived in this property for 3 years and we have now sold it for £168,000 and bought another property in a better area for £220,000. This purchase was made with the proceeds of the sale plus a contribution made by my brother of £52,000 which was money left to him by my mother and did not form any part of the trust...He has now lived in both properies for nearly 10 years rent free.  My question is this. if the value of the property my brother now lives in, is  valued at £275,000  and as far as the 10 year trust revaluation is concerned, am I correct in assuming that as he now  has an equity interest in the property of £52000 and that the value which is to be assessed For IHTpurposes is £223,000 and not £275,000.Secondly  Has anyone any idea of how much tax we might be charged based on the information provided.ANy comments would be welcome

I reccomend you dig out your mother's Will to clearly establish whether she did  create an immediate post death interest trust ( per Keep_pedalling) , or a special trust for disabled persons - your brother's psychiatric condition may be such that he qualified for that type of settlement to be created on his behalf.

Either way neither of these settlements are subject to the 10 year anniversary reporting requirements. However the fact that you mention that regime at all is a concern. Where did you get the impression it might apply in the case of the trust you are trustee of? 

The responses we have given assumed the trust was established under the terms of your mother's Will. If this is not case and it was established during her lifetime and she was sole trustee until death, then on the figures you give a 10 year iht liability does not arise, but as trustees you may nonetheless have an HMRC  reporting obligation. 

So to ensure we have provided a correct view of your current compliance obligations ( or otherwise), please clarify the following;

* Date the trust was actually created

* If created under the terms of the Mother's Will, confirm the terms of the trust quoting the actual operative clauses if you can. 

* your mother died 2016. Confirm dates your brother occupied the original trust property since you say you have only now sold it, but your brother only occupied for 3 years so the time line you have given seems a bit off.

* You say your brother is not a beneficiary of the trust, but has the right to live there for life. If so that makes him the overriding beneficiary of the trust to the exclusion of you and your sister until his death. You also say you don't charge him rent but that would not normally be possible with an IPDI trust. Clarification of the precise trust clauses, should therefore clear up these areas  of confusion.

piggy

Thanks  your both for your replies

The trust was set up after her death in15th March 2016

Only the property was put into trust

My sister and I are the trustees my brother is the benificary ,different to what I previously stated

My mothers property was occupied by my brother for 3 years

After 3 years another property was purchased with the proceeds of the sale combined together  together with an additional £62,000 paid by my brother from his own money and was purchased as a tenant in common.

My brother has lived in both houses rent free for the past 8 years.

My sister and I inherit the house if my brother dies.

poseidon1

piggy said:

Thanks  your both for your replies

The trust was set up after her death in15th March 2016

Only the property was put into trust

My sister and I are the trustees my brother is the benificary ,different to what I previously stated

My mothers property was occupied by my brother for 3 years

After 3 years another property was purchased with the proceeds of the sale combined together  together with an additional £62,000 paid by my brother from his own money and was purchased as a tenant in common.

My brother has lived in both houses rent free for the past 8 years.

My sister and I inherit the house if my brother dies.

Additional information very helpful.

Although you have not quoted the specific clauses granting your brother a life interest in the original property with reversion to you and your sister on his death, I will assume the trust is indeed an IPDI trust.

On this basis, the trust is outside the 10 year IHT reporting regime.  So with regard to valuing the current property for that purpose you have no need to, and there is no IHT return to be submitted on the trust's 10th Anniversary this year. Did someone advise you to the contrary?

Since the current property was purchased as tenants in common between the trust and your brother personally, on the original figures you gave ( £52k brother - not £62k now mentioned), then your brother contributed 23.63% of the £220,000 original purchase price and the trust the remaining 76.37%.  On this basis ( and for information only) he now has equity of £64,982 in the property based on your £275,000 valuation

Finally, please note that on the basis the trust is IPDI the entire value of the property forms part of your brother's personal estate for IHT purposes on death, and not just the percentage which he purchased. 
As long as he has no other substantial assets , and the property value remains within the current nil rate band of £325,000,  there should be no IHT chargeable either on the trust or his personal estate.

Just out of interest, who is responsible for repairs and  maintenance of the house under the terms of the trust. Whoever was originally responsible, has that agreement been varied following the joint purchase of the replacement property?

piggy

 As a trustee i am responsible for the repair and maintenance. I wonder if you could help a little more?.I have recently just found out, that the trust should have been registered with hmrc and have tried to complete the forms myself  to do so. At 80 years of age I am now past my sell dateand have found it impossible to take this on.You need to be a cross between a  Philadelphia, lawyer and a code breaker to understand the jargon used in the 20 odd pages that have to be completed

I have tried to find tax  experts In the Cardiff area, to deal with this on my behalf and have yet to do so. I think even the so called experts have problems dealing with this one. Is there anyone you know of who might be able to help with this Thanks again for your help which is much appreciated

Yorkie1

Who has indicated you need to register it with HMRC, and on what basis did they say that?

piggy

HI yorkie 1 The government trs website stipulates all trusts must register taxable or not

piggy

Hi poseidon 1

Further to my previous posts and your replies, I can see that you are very knowledgeable regarding wills and trusts, so I would like to ask, if you would take on the registration of my trust on, on a professional basis. If you would, please just post yes, I will take it on and I will post my email address, so we can communicate on a more private basis.   

poseidon1

piggy said:

Hi poseidon 1

Further to my previous posts and your replies, I can see that you are very knowledgeable regarding wills and trusts, so I would like to ask, if you would take on the registration of my trust on, on a professional basis. If you would, please just post yes, I will take it on and I will post my email address, so we can communicate on a more private basis.   

Sorry can't assist, but since you are in Wales I took the liberty of googling Welsh Chartered Accountancy practices with trust expertise.

A number of firms came up, Welsh Walker of Rensfrewshire had an informative section on their website which amongst other things covered trusts registration - see link below

https://www.welshwalker.co.uk/factsheets/capital-taxes/trusts

Probably closer to you is the firm Hodge Bakshi of Cardiff link below - 

https://www.hodgebakshi.com/services/individuals/trusts

Obviously i cannot vouch for either firm, but they are Chartered practices ( a pre requsite in my view for this kind of work), so hopefully both should be worth a call for a quote to sort out registration on your behalf, assuming you can provide the appropriate trust document.

Incidentally since both firms provide trust and IHT Estate Planning services, they should also be able to assist with HMRC compliance on the eventual death of the life tenant, if you find that too much of a chore to take on when the time comes.

Hope one other of the firms will be happy to assist going forward.

piggy

Hi Poseidon 1, once again thanks for your valued comments. As you most you most probably aware I am like a fish floundering in water with this trust business.Since my last posts I have now found out that within the trust document there are two trusts, one relates to property and one relates to Money left in trust to my brother The money my mother left was left equally to the four of us, however the money left to my brother, was put in trust and I have only just picked up on this.Under the terms of the will, the trustees , my sister and I were allowed to manage and invest this on his behalf if we wanted to. Instead we let him have all the money on the next day, that probate was granted.This did not break any of the conditions in the trust document My question is, would be subject to any charges by HMRC.