Tax Question:

I have a life interest in property which will be part of my estate when I die, and IHT will then be payable estate.

I assume the IHT on the life interest portion is paid out of the property subject to the life interest rather than out of my own assets? But which part of the estate gets the benefit of the Nil rate band?

If I now make a gift or £100,000 to a discretionary trust, while still having a full Nil rate band available, do I have to pay 20% tax when the gift is made or does it simply reduce the Nil rate band? And if it does, does it reduce the NRB permanently or does the 7 year rule apply?

Thanks!

Answer:

I assume the IHT on the life interest portion is paid out of the property subject to the life interest rather than out of my own assets? But which part of the estate gets the benefit of the Nil rate band?

Yes, the trustees would be liable for IHT on the trust property (ie value of the life interest). The Personal representatives would be liable for the IHT on your personal estate.

In terms of the nil rate band, this is offset against your total estate (ie trust property and personal property). The IHT is then calculated and is split between the trustees and PR's based on the value of trust property to personal property.

If I now make a gift or £100,000 to a discretionary trust, while still having a full Nil rate band available, do I have to pay 20% tax when the gift is made or does it simply reduce the Nil rate band? And if it does, does it reduce the NRB permanently or does the 7 year rule apply?

No you don't pay IHT immediately, it would reduce the value of the NRB. As usual the 7 year rule applies so that if you survived for 7 years the £100K would be excluded from your estate.