Download larger version of Table 2
Alfred is married with three children. His main assets are a valuable art collection and a number of investment properties. Alfred is writing his will and wants to provide for his wife, Molly, whilst ensuring that the capital value of his estate is preserved for his children.
Alfred could establish a trust with an immediate post-death interest via his will. Molly would be the life tenant and would have the right to use the trust assets and receive any income during her lifetime. On her death the assets would pass to the children.
Alfred would need to be advised that on the transfer of the assets to the trustees:
- there will be no CGT as the trust will be created on his death
- there will be no IHT, as he will be regarded as having left his estate to Molly such that the spouse exemption will apply.
Whilst the assets are in the trust:
- the trustees will be subject to income tax and CGT on the income and gains arising in respect of the trust assets; Molly will also be taxed on the income but will receive a credit for the tax paid by the trustees
- there will be no 10-year charge.
On the death of Molly and the transfer of the assets to the children:
- there will be no CGT on the gains made whilst the assets have been within the trust, because the assets are transferred as a consequence of a death
- the trust property will be included in Molly’s death estate for the purposes of IHT and the IHT thereon will be paid out of the trust’s assets.
You need to be completely clear in your mind as to the rules set out in Table 2 (and Table 1 from Part 2). Gifts hold-over relief is particularly important here, as it is available, regardless of the nature of the assets disposed of, whenever a transfer is immediately subject to IHT.
Written by a member of the P6 examining team
The comments in this article do not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content of this article as the basis of any decision. The authors and the ACCA expressly disclaim all liability to any person in respect of any indirect, incidental, consequential or other damages relating to the use of this article.