Thank you both most sincerely.
The CGT matter on exit from the trust has been dealt with incidentally.
The correspondence has served to confirm my fears that the IHT on death of the former life tenant would be by reference to the underlying capital though I was hoping for a different outcome.
Just one point is not understood by me from YellowSticky's comment. " My understanding is that for settled life interest trusts age does not matter in finding the transfer of value and the calculation isn't orthodox and can be tricky".
Surely if the PET is solely by reference to the underlying trust capital then that is definitive so why is the calculation not orthodox and possibly tricky?
Sorry if I'm being thick.
Thanks LyneT. Very helpful.
Thanks LyneT. Very helpful. Yes, she gave up her life interest but for a consideration.
So now we are agreed on a PET, I have to establish the value of the PET.
But in your opinion is it by reference to 3/8 of the open market value of the underlying property at the date of the PET (less any non marketability discounts we can claim) or is it on the capitalised value of future rents as appropriate to a lady of her age?
You will appreciate that the two amounts are very different and as the capitalised value falls within the zero rate band and this was her first lifetime gift, then this will free the trustees from IHT liability.
Your help is much appreciated and hopefully I need bother you no more upon your reply.
Thank you YellowSticky & Lynne.
The potted history is as follows:
Mr X owned a valuable commercial property which he rented out. The rent subsidised his lifestyle. He divorced his wife and paid maintenance. He died in 1978 and left the property to his sister (a life interest), nephew and niece. His former wife contested the will successfully and the courts awarded her income for life as to 3/8 of the whole.
In 2007 the sister died and her share of the trust property which was the basis of her life interest passed to the nephew and nice as remaindermen. They wanted to maybe eventually sell the property which was impossible with the life interest still attached. An agreement was then reached with the former wife who was very elderly by then and a negotiated capital sum was paid by the trustees to the former wife in full settlement of any further claim on the life interest. The disposal of the obligations of the life interest of the sole beneficiary (with the remainder of the property now being held outside the trust) resulted in the end of the trust as distributions of her former interest could now take place to the niece and nephew.
She died 4 years later.
I note your comments but the lawyers who dealt with the matter are adamant that the trust effectively ceased on sale/disposal by her of the life interest.
Any further comments would be warmly appreciated.
I have a client formerly with CLAC and I am being asked to re-prepare two years; accounts.
There must be hundreds of clients affected by CLAC who are going to end up with large accountancy fees to hopefully mitigate threatened tax liability. So is everyone taking this lying down or is there some body set up for former clients of Christopher Lunn & Company so that we can at least establish if we need to do this extra work?.
I am not saying if CLAC has done anything wrong, perhaps they haven't but the problem of proving innocence is likely to be costly.
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