Lifetime tax planning involving the family home has become difficult and complex. There is, however, a welltrodden path for a married couple or civil partners to save inheritance tax by using a nil rate band discretionary trust under their Wills. This ensures that, on the death of the first to die, full use is made of the allowance that is free of inheritance tax.
In many estates it can be a problem that it is not easy to set aside specific 'spare assets' to form this trust. This can be a particular issue where much of the value of the estate is in the family home in which the surviving spouse would want to continue to live. It is not, however, necessary for the trust to contain assets in the usual sense. There are two ways to approach this: one is to loan assets to the surviving spouse and the other is for the trustees to secure a charge over property passing to the surviving spouse.
The recent decision by the Special Commissioners in Phizackerley has attracted a significant amount of press attention and may have led some to believe that the use of such trusts is no longer possible where the family home is involved. This is not the case. Nil rate band discretionary trusts can still be utilised even where the family home, or a share in it, is involved. It has, however, always been necessary to take care in structuring these trusts when using the family home, and that is particularly so following the Phizackerley case.
We will be writing in more detail about the Phizackerley case, and estate planning by Will involving the family home, in the next issue of our regular newsletter Individual Matters.