re valuation of IIP trust for potential assessment by HMRC

[TrustWill]

A friend of mine and his sister are trustees of their late mothers IIP trust.The trust was created on thier late mothers death in 2016. Probate was granted and no IHTwas payable The total value of probate was £314,000 split £132,000 for the property and £182,000 for investments.Only the property was placed in trust.The brother of the trustees lived in the original property for 3 years and under the terms of the trust, the trustees could have charged rent, but the trustees allowed him to live there rent free.This property was then sold and the proceeds of the sale,was used together with a contribution made by the brother, to purchase another property. The trustees allowed the brother to live in it rent free. For revaulation purposes the current property is valued at £275,000 My question is this, as this valuation includes £62,000 of the brothers own money, how does this get treated by HRMC. Does HMRC deduct the £62,000 from the total of the revaluation, leaving a balance of £213,000 or is the whole amount of £275,000 used to calculate any amount of iht due. As this is an IIP trust would the amount of any IHT due be treated as being required as an interim payment or would HMRC allow the trust to run it's course and claim any tax due back when the beneficiary dies.

[Pezza54]

Hi
If after a few days nobody answers your question, you could try posting on the TaxationWeb tax forum

[atticus]

May I ask what concern this is of the OP?

[TrustWill]

Hi ATTICUS OP please enlighten me and I will reply

[atticus]

Original Poster: you.

[TrustWill]

Help can any one check this interpretation for me. The reason for posting this ,is, this trust in 2 years time will be subject to the 10 year Anniversary charge. i want to try and calculate what the tax charges might be.My estimate on a best rate calculation,that is not including the brothers £62,000 contribution and based on the Properties current valuation of £275,000 and the NRB at the time of death which was £325,000. At the settlors time of death the estate was valued at, Investments 182,000, Property 132,000, total 314,000 so no IHT was due and only 132,000 was put into trust which was the value of the house, the revaluation amount best case would therefore be , 275,000 less 62,00= 213,000 plus £180,00 = £393,000 less NRB 325,000 = new valuation that tax is due on = £68,000 x 20% [Trustees are only charged 20% on trust assssets] = £13,600 tax to pay Using the same formula but worst case scenario tax would be £10,400 tax to pay. Can any one confirm I am on the right Path.

[TrustWill]

Hi ATTICUS OP please enlighten me and I will reply

I have just posted more information Please see this post as it might answer your question . As an ex solicitor you have a lot of experience and Iwould be grateful for any advice you could offer

[MaryS57]

I think you are on the wrong track entirely. I have been trustee of both IIP and discretionary trusts.

If this is just an academic exercise only - then you need to look at :-


https://www.gov.uk/hmrc-internal-man...nual/ihtm42087

As far as I can see:-

A= ~ 213K or thereabouts (but I think this value is wrong as you don't have the correct figures to calculate the % ownership of the property divided between the individual and the trust), This lack of correct figures affects A- F values

B= £143K or thereabouts

C= A- B = £ 70K or thereabouts

D = C x 20% = £14k or thereabouts

E = D/A = 6.572% (to 3dp) or thereabouts

F = E x 3/10 = 1.971% (to 3dp ) or thereabouts

£213K @ 1.971% = £4200 or thereabouts

All these values are irrelevant as the exercise is done at the 10 yr anniversary in any event, assuming no capital is taken out of the trust before this. Also I have only done a quick calculation so please don't rely on them at all but try Taxation web

No doubt the trustees themselves will be on top of their duties in any event, not least because trusts such as this need to be registered with HMRC as far as I'm aware.

https://www.gov.uk/guidance/register...t-as-a-trustee

[TrustWill]

I think you are on the wrong track entirely. I have been trustee of both IIP and discretionary trusts.

If this is just an academic exercise only - then you need to look at :-


https://www.gov.uk/hmrc-internal-man...nual/ihtm42087

As far as I can see:-

A= ~ 213K or thereabouts (but I think this value is wrong as you don't have the correct figures to calculate the % ownership of the property divided between the individual and the trust), This lack of correct figures affects A- F values

B= £143K or thereabouts

C= A- B = £ 70K or thereabouts

D = C x 20% = £14k or thereabouts

E = D/A = 6.572% (to 3dp) or thereabouts

F = E x 3/10 = 1.971% (to 3dp ) or thereabouts

£213K @ 1.971% = £4200 or thereabouts

All these values are irrelevant as the exercise is done at the 10 yr anniversary in any event, assuming no capital is taken out of the trust before this. Also I have only done a quick calculation so please don't rely on them at all but try Taxation web

No doubt the trustees themselves will be on top of their duties in any event, not least because trusts such as this need to be registered with HMRC as far as I'm aware. It would be nice to know if you agree with interpretation below

https://www.gov.uk/guidance/register...t-as-a-trustee

Thanks for your comments, since posting I have searched for info on the net.It judging by the following info below it looks like both my calcs and method are entirely wrong.

1. Calculation Timing: The charge is applicable every 10 years from the date the trust is created.
2. Value of the Trust: At each 10-year anniversary, the value of the trust's assets is assessed. This includes the market value of all assets held in the trust.
3. Nil Rate Band: The first £325,000 (as of the 2023/2024 tax year) of the trust’s value is exempt from this charge due to the nil-rate band for inheritance tax.
4. Rate of Charge: The tax rate for the 10th anniversary charge is 6% on the value of the trust assets exceeding the nil-rate band.

Example Calculation:

1. Trust Value at Anniversary: Let's say the total value of the trust at the 10-year mark is £1,000,000.
2. Calculate the Taxable Amount: Subtract the nil-rate band:
   • £1,000,000 (trust value) - £325,000 (nil rate band) = £675,000 (taxable amount).
3. Calculate the Charge:
   • £675,000 (taxable amount) x 6% = £40,500 (IHT due).

Additional Considerations:

• Subsequent Charges: This 10-year charge will apply again every 10 years based on the value of the trust at that time.
• Exit Charges: In addition to the 10th anniversary charge, trusts may also face exit charges when assets are distributed from the trust.
• Reporting: Trustees are responsible for reporting and paying any tax due to HM Revenue and Customs (HMRC).
• Professional Guidance: Tax laws can be complex and subject to change, so it's advisable to consult with a tax advisor or estate planner to ensure compliance and optimize tax obligations.

Always refer to the latest guidance from HMRC or a professional for the most current information and tailored advice regarding trusts and taxation.