Frequently asked questions
I have recently been appointed to give investment advice to the trustees of a nil rate band discretionary Will Trust (DWT), the testator (settlor) of which died in December 2007. Because his personal representatives were able to claim a 100% transferable nil rate band (TNRB) no IHT was due on his estate and £600,000 was placed in the DWT with the small residuary balance of his estate passing to charity. Am I right to advise that any distributions from the DWT before the 10th anniversary (TYA) of the testator’s death will not give rise to an IHT Exit charge under the relevant property regime?
Although the availability of a TNRB ensured that no IHT was due on the testator’s estate, the benefit it provided does not extend to the DWT. For the purpose of applying the relevant property provisions, the DWT is a separate “stand alone” arrangement with its own NRB (albeit reduced by the cumulative value of any chargeable transfers made by the testator in the 7 years immediately before his death). As a consequence, when calculating the rate of tax that applies to any distributions from the DWT before the first TYA (in accordance with IHTA84/s. 68 (1)), if the value of the funds that were transferred into the DWT (the “historic value”) is greater than the single NRB applicable when the property leaves the trust, an IHT liability will arise.
