• March 29, 2024
 Make sure your clients don’t miss out on the RNRB

Make sure your clients don’t miss out on the RNRB

In order to avoid losing out on a new tax perk, thousands of people who set up trusts as a way of a reducing inheritance tax will have to re-arrange their affairs.

Legal professionals have stated that main residence nil-rate band could save families thousands in death duties and have warned there is little time left before they risk missing out.

Financial advisers and solicitors alike have, until recently, advised wealthy families to establish discretionary trusts to when passing on property to their offspring.

However, the introduction of the main resident nil-rate band (RNRB) from 6 April this year will explicitly exclude trusts, presenting problems for many families.

On top of the existing £325,000 inheritance tax allowance, the RNRB will provide an additional amount, gradually increasing by £25,000 per year. By the tax year 2020-21, a couple will be able to bequeath a property free of tax to direct descendants’ worth up to £1 million.

However, wills and trust specialist Gary Kiely, from law firm Blaser Mills, has estimated that the greater allowance could be missed out on by thousands unless they amend their current arrangements.

As there is no main registry of trusts and wills are private documents, it is difficult to calculate exactly how many wills need to be rewritten.

However, wills are held by an estimated 16 million adults, with the majority written with the assistance of a legal professional likely to include a trust.

This was a concern for Mr Kiely, who stated: “It needs to be stressed to people that if there’s a discretionary trust sitting there and the first spouse dies, the children need to do something.”

The RNRB only applies when the main residence is bequeathed to “direct descendants” which includes stepchildren, foster and adopted children. As, technically speaking, assets are not owned by the trust and are controlled by the trustees as opposed to beneficiaries, discretionary trusts are excluded.

There is nothing to unwind as the trust does not come into existence until the death of the first spouse. However, the order to establish a trust must be removed.  From the death of the second parents, the beneficiaries of a will have two years to disband the trust using a “deed of variation”; this ensures they are able to make the most of the resident nil-rate band.

It is important that all of the beneficiaries and trustees agree to this. A “variation” occurs if the person that wrote the will had made changes themselves. Mr Kiely stressed that a variation can only be used if none of the beneficiaries are minors. He did mention that trustees could “appoint out” trust capital directly to beneficiaries by using a “deed of appointment” within the two years after the death. This can be done by the trustees without beneficiary consent and enables the RNRB to be claimed.

If the two-year period ends prior to a variation or deed of appointment being undertaken, the allowance is lost and the original will is adhered to.

 

 

 

Georgia Owen

Georgia is the Senior Content Executive and will be your primary contact when submitting your latest news. While studying for an LLB at the University of Liverpool, Georgia gained experience working within retail, as well as social media management. She later went on to work for a local newspaper, before starting at Today’s Wills and Probate.