Nil rate band discretionary trust and debt

Nil rate band discretionary trust and debt

Didn't find your answer?

Upon my client's death, a nil rate band discretionary trust was set up, with loan from the widow. The widow has now died and the loan has been repaid by the widow's estate.

In the trust deed, the loan was to be repaid with interest accruing at RPI. However, the trustees have waived their right to the interest.

Is there any capital gains implication in the trustees waiving their right to the interest?

I can't seem to find anything in legislation about waiving their right to interest but this must happen quite often.

Lina Bolton

Replies (1)

Please login or register to join the discussion.

avatar
By wdr
25th Jul 2006 12:21

The Trustees of a discretionary trust do not have this power
unless all the beneficiaries[including infants] and assuming there are no unborn beneficiaries consent.

If tax planning has involved trusts, then it has imported trust law except to the extent it is specifically disapplied.

It is assumed that the question includes an error, and should have talked about a a loan to, not from the widow.

The loan would almost certainly have been BY the trustees of the NRB TO the widow, not by her to the trustees.

Assume for a moment that there is a specific power in the trust deed allowing the trustees to waive any entitlement to interest, then that is a 'transfer of value' by the trustees for IHT purposes[IHTA s3(3)].
The exit tax rules under IHTA s65 potentially give rise to an IHT charge, although the figures may well result in the charge being nil.

Given that the accumulated interest may be allowable as a debt due by the widow so reducing her estate for IHT, this suggested waiver looks like the family shooting themselves in the foot anyway-even allowing for income tax due by the trustees of the discretionary trust.This tax can of course be recovered by appointing the resultant income to minor beneficiaries [assumed to have no other income].


Is there another aspect which has not been explained, such as a possible dispute between the mother's heirs and the benficiaries of the discretionary trust, or is this just someone's idea of a simple life?

Thanks (0)