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Expert says nil-band rate case proves zero
19/04/2007
After a nil-band rate trust was ruled invalid by tax commissioners, many had feared that this method of cutting inheritance tax (IHT) would not work, but a leading expert has dismissed this as a fallacy.
Julie Hutchison, estate planning specialist at Standard Life Assurance, says that the 500,000 families across Britain and Northern Ireland who have set up 'tenants in common' agreements need not worry.
Fears had been sparked after the Special Commissioners for Tax ruled the nil-rate band will trust set up by Dr Patrick Phizackerley and his wife Mary as invalid as Mrs Phizackerley had died first.
Since she had not contributed any money to buy the couple's home, her share was ruled to have come from her husband and as he was a trust beneficiary, it had effectively gone back to him in a circle, making it ineligible for IHT exemption.
Julie Hutchison told This is money website: "Any suggestion that the case is evidence that nil-rate band will trusts do not work is wide of the mark. The trusts themselves are not the issue. The issue is rather this: in what way are funds made available to the surviving spouse from the trust?"
She added: "This point is relevant in any trust where the trustees are considering making a loan to a beneficiary rather than an outright distribution. In particular it affects nil-rate band will trusts where assets are lent to the surviving spouse - sometimes called an 'IOU' situation - rather than distributed outright, which is a route particularly favoured when dealing with the family home."
Ms Hutchison advised those worried about their trusts to consult their solicitors to "check if the 'circular' point applies".
"The IOU route could still be entirely appropriate, but not in certain circumstances where the family home has not been purchased with cash from both parties," she said.
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Julie Hutchison, estate planning specialist at Standard Life Assurance, says that the 500,000 families across Britain and Northern Ireland who have set up 'tenants in common' agreements need not worry.
Fears had been sparked after the Special Commissioners for Tax ruled the nil-rate band will trust set up by Dr Patrick Phizackerley and his wife Mary as invalid as Mrs Phizackerley had died first.
Since she had not contributed any money to buy the couple's home, her share was ruled to have come from her husband and as he was a trust beneficiary, it had effectively gone back to him in a circle, making it ineligible for IHT exemption.
Julie Hutchison told This is money website: "Any suggestion that the case is evidence that nil-rate band will trusts do not work is wide of the mark. The trusts themselves are not the issue. The issue is rather this: in what way are funds made available to the surviving spouse from the trust?"
She added: "This point is relevant in any trust where the trustees are considering making a loan to a beneficiary rather than an outright distribution. In particular it affects nil-rate band will trusts where assets are lent to the surviving spouse - sometimes called an 'IOU' situation - rather than distributed outright, which is a route particularly favoured when dealing with the family home."
Ms Hutchison advised those worried about their trusts to consult their solicitors to "check if the 'circular' point applies".
"The IOU route could still be entirely appropriate, but not in certain circumstances where the family home has not been purchased with cash from both parties," she said.
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