Seeking clarity re RNRB, IHT and Trusts

brucefan_2

My wife and I have 'mirror wills' Whichever one of us goes first, leaves their 'beneficial share' of our house equally to three trustees, the other spouse and our two adult daughters.

So ... a couple of queries please about RNRB

My initial understanding had been that the share going to the other partner would be completely free of IHT and would not use up any of the RNRB. The two other shares going one to each daughter would use up the RNRB (and in our case go slightly over).

Whilst discussing our wills with a solicitor last week, she advised me that the three equal shares going in to 'The Trust' would not trigger the RNRB at all.

On Martin's website earlier today, I found this:

" ... Your home won't qualify for the £175,000 main residence allowance if it's in a 'discretionary will trust', even if the beneficiaries of the trust are your children or grandchildren ... "

I'm now not clear on what the situation is.

If anyone were able to offer any clarity or point me in the direction of information which might give me some pointers, I would be very grateful.

Keep_pedalling

This trust set up is rather complex and would not be the standard way to protect your share of the family home. I doubt whether it is the most tax efficient either. A better alternative would be an immediate post death interest trust (IPDIT) This places the beneficial ownership with the surviving spouse and legal ownership with the trust. Your children would classed as remaindermen and would receive their inheritance on the death of the surviving spouse.

As the surviving spouse is the beneficial owner spousal exemption applies and none of the NRB or RNRB is used. For IHT purposes the whole house forms part of the surviving spouses estate but will be able to take advantage of the both transferable NRBs. Neither the trust or your children will have a CGT liability. 

brucefan_2

@Keep_pedalling

Thank you so much for taking the time to reply and also for such a clear explanation.

I now have a direction for some further research and will now be able to frame my questions to the solicitor in a different way.

I really appreciate your input.