Trusts and Estates

The essential Inheritance Tax base is the transfer of value – the disposition which results in a reduction in the size of the transferor’s estate. IHT therefore taxes what the transferor or donor loses rather than what the transferee or..

In last month’s issue of Trusts and Estates there was a discussion of the provisions of the Commonhold and Leasehold Reform 2002 Act under which leaseholders of flats may, acting collectively, take over the management from the existing freeholder.The Act received Royal Assent on 1st May 2002, but the provisions are not yet (at time of writing) in force. They will brought into force by Statutory Orders. It is thought that the necessary Orders may be made in the course of July, relating to some parts of the Act.

Payment of IHT before grant of probate

One of the most difficult assets, from the point of view of the tax planner, is the family home. It is difficult for a parent to make a gift to the children of a share in the family home because the parents usually wish to go on living in it, and the problems of making a gift with reservation of benefit raise insuperable problems. The problems persist after death, when the first parent to die wishes to leave a share in the house directly to the children without prejudicing the right of his or her spouse to continue living in the house. In these circumstances, it is all too easy for the Will to be construed as creating an interest in possession in favour of the surviving spouse, with the consequently increased IHT liability on the death of the first spouse to die.Yet again, this issue has been considered by he Special Commissioners in Cork v IRC Sp C319 (noted 2002 STI 936).

Recent months have been characterised by sharp falls in the financial markets.At the time of writing, it is hard to see when this process will stop. Trustees and personal representatives may, however, be faced with the question of deciding, for the medium or long term, whether particular investments should be sold or retained for the longer term.Tax will undoubtedly be a factor but in the normal course it should not be the only one. A more fundamental question will be whether the investment should be disposed of because it is an unsatisfactory investment, or currently depressed market value merely represents a “blip” on the screen of a history of successful investment – but one which may possibly be able to be exploited to obtain what will, in the longer term, be seen to be a tax advantage.