My client has left their main residence to their children through a discretionary trust in their will. If a deed of variation is done within 2 years of the date of death would the residence nil rate band still be available?

The residence nil rate band is available to individuals who leave a qualifying residential interest to a direct descendant. This additional nil rate band is only applied against the estate on death.

If the client leaves their main residence to a discretionary trust then the estate would not qualify for the residence nil rate band. IHTA 1984 s8K defines the meaning of closely inherited. The property must be inherited by a child or remoter lineal descendant of the deceased, including a step-child and foster child. It also includes a spouse or civil partner of the lineal descendant. It does not, however, include a discretionary trust.

If a deed of variation is executed containing an IHTA 1984 s142 election redirecting the property absolutely to a direct descendant then for IHT purposes they are deemed to have inherited the house on the deceased’s date of death, therefore the residence nil rate band would be available.

In addition to this, advantage can be taken of IHTA 1984 s144 to appoint a qualifying residential interest in a discretionary trust out to a direct descendant within 2 years of the date of death and the direct descendant will be treated as though they had directly inherited the qualifying residential interest making the residence nil rate band available.

In association with Croner Taxwise

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