For inheritance tax purposes this would be treated as two separate trusts as stated in IHTA 84 s44(2) – see IHTM42253. Therefore, the Discretionary trust in this case would be treated as two separate trusts, one with the wife as settlor and one with the husband as settlor.
Each trust would have its own nil rate band of £325,000 providing the settlors hadn’t made any previous chargeable lifetime transfers within the 7 years prior to settling these trusts. This would mean that each trust held relevant property worth £200,000 which is below the nil rate band so it appears as no inheritance tax would be due at the ten-year charge date.
However, there still may be a reporting obligation for the ten year anniversary event unless the trust is an “excepted settlement” within SI 2008/606. The value of the notional aggregate chargeable transfer specified in IHTA84 s66(3) cannot exceed 80% of the nil rate band (current maximum £260,000 – see IHTM06124) and the following “general conditions” must be met – see IHTM06123:
- No related settlements
- The settlor is domiciled in the UK when the trust was settled and remained domiciled in the UK throughout the trust until the occasion of charge or the settlor’s death
- The trustees of the settlement are UK resident throughout the existence of the settlement.
The above stands for all relevant property trusts except pilot trusts that meet the conditions in IHTM06122.
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