Residence Nil Rate Band & Trusts..

adam_mcc

Good morning,

I have come across a situation where I'm entirely sure how the RNRB would work. We have a married couple who own their property on a Tenants in Common basis - on 1st death, 50% of the property passes into a Discretionary trust.

I'm struggling to find any definitive answers as to how the RNRB would work (if at all) in this situation in conjunction with normal IHT Allowances. From what I can see so far, it looks to me like on 1st death the RNRB isn't available and passes instead to the survivor, with the property being assessed as normal for IHT purposes. On 2nd death, there is then effectively 2 x RNRB available.

Has anyone had any experience with this?

Thank you,

Adam

timblowers

If it's completely discretionary, I don't think it would qualify on first or second death.

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

"If a home is put into a discretionary trust on death, the deceased’s estate won’t qualify for the additional threshold even if the beneficiaries are direct descendants of the deceased. Whether the beneficiaries are entitled to use the home is at the discretion of the trustees, so the home won’t form part of any beneficiary’s estate and they’ll not be treated as inheriting the home.

The estate may still qualify for the additional threshold if the trust meets certain conditions. For example, if the trust has been set up for:
•a disabled beneficiary
•orphaned children under 18
•any children under 25"

adam_mcc

Thanks for that Tim - I'll do some more digging!

Jona

If the Trust is discretionary then the house isn't passing to a lineal descendant so will not qualify for RNRB.

If it's IPDI and spouse has life interest and remaindermen are direct descendants then it can be claimed.

richardgough

Before considering the RNRB (and I believe that there are two available for the surviving spouse in respect of their share on second death; the half going into trust definitely doesn't and is irrelevant on second death) but let's ignore that for the moment.

Where is the surviving spouse going to live? Presumably in the whole house, and presumably not as a tenant on a formal rental agreement at market rates?. Are you sure there will be robust regular trustee meetings deciding on who gets the use of the house on a discretionary basis? How is not charging a rent in the best fiduciary interests of the other discretionary beneficiaries?

Very real risk of the survivor being deemed to have an interest in possession and thus getting assessed on the full property value for IHT.

IHT planning with the main residence is dangerous and in the main, given transferable NRB and RNRB, usually a costly ineffective exercise.

Its entirely possible that your situation arises from Wills drawn up prior the introduction of transferable Nil Rate Band.

Jona

@richardgough said:

Its entirely possible that your situation arises from Wills drawn up prior the introduction of transferable Nil Rate Band.

Indeed!