Surely the easiest way is to inherit it, then hand it over?
--
Alex
Not a good idea at all unless the amount is small. It can cause extra
Inheritance tax to become payable. The correct way is to execute a deed of
variation that needs to be professionally done to ensure that HMR&C accept
it.
Peter Crosland
Depends what it is, but a simple way might be to get it (whatever it is) and
give it to her.
A gift could have IHT consequences - eg if the donor dies within 6 years
(or whatever the period is now).
There is a formal, legal called (now) a "deed of variation". Putting
that into the search engine of your choice should give a good guide to
what's involved. Eg
http://www.hmrc.gov.uk/manuals/tsemmanual/tsem1815.htm
Of course the cost might not be justified if the amount is small(ish)
and/or you (the OP) are young, fit and don't hang-glide over active
volcanoes.
--
Robin
PM may be sent to rbw0{at}hotmail{dot}com
The OP can decline to accept the inheritance without using a deed of
inheritance. It would then go into the residue of the estate, which might
all go to his sister. This would depend on what the will says of course, but
it's certainly possible that the entire estate is left to the OP and his
sister, and if he gives up his share that achieves the result he wants.
Although a person cannot be forced to accept property (broadly defined), if
the property becomes their's because that's the way the law works, it does
not shift automatically to another person merely because the person declines
it.
They actually have to do something that the law recognises will change
ownership of the property.
What is the specific legislation that has that effect?
The normal law governing Inheritance Tax. For example if A is beneficiary of
£300,000 and dies soon after leaving a total estate of £600,000 then IHT may
be payable on the full amount of the estate. If A had instead executed a
deed of variation for the £300,000 in favour of his sister then no
inheritance tax would be payable on A's estate.
Peter Crosland
Why would the fact that A gave his sister £300,000 instead of executing the
deed make any difference?
If you care to look at the Inheritance Act 1984 (1984 c.51) the relevant
provision will be apparent
A deed means that for IHT purposes it is as if the variation had been
effected by the deceased (or benefit disclaimed had never been
conferred). A gift is (probably) just a potentially exempt t/f.
As I understand it, the situation only arises in the special case where A is
likely to die before A has an opportunity to actually give the property
away. If that is correct, the DoV method is merely a matter of timing. In
the ordinary case, where A is not likely to die before the property comes to
him or her, it will be simpler to let things take their course and for A to
give the property to the sister. Not only is that relatively simple, it
certainly avoids legal expense of a DoV, and avoids the need to ensure that
HMR&C accept the DoV method.
So far as your specific comment is concerned, my understanding is that where
A has an entitlement under the testator's will, ownership does pass to A. A
DoV may divert the property before A takes possession of it, but A gets
ownership. The DoV alters the trusts created by the will. It can't vary
the will retrospectively to stop A getting ownership. I am happy to be
corrected, of course.
They can disclaim the inheritance, and then the Will defines what happens to
the money. (I thought that's what I said before.) Anyway, as you evidently
don't belive me, here's a link to an article written by the College of Law.
http://business.timesonline.co.uk/tol/business/law/article1559786.ece
--
Murphy's ultimate law is that if something that could go wrong doesn't,
it turns out that it would have been better if it had gone wrong.
_____________________________________________________________________________________________________________________________________________________________
It really depends on how pedantic you want to be about the term ownership
that can have a number of forms. At the point of death the deceased's
property becomes vested in the executor(s) or in the case of intestacy of
personal representatives. That situation remains until probate is granted
and the estate is distributed. As an exception to the convential way in
which ownership passes the deed of variation is a procedure by which HMR&C
allow beneficiaries of the will to renounce their inheritance in favour of
someone else in order to avoid the potential for double IHT. Although a DOV
can be executed AFAIK up to two years after the death it might well be
advantageous to do this before probate to reduce IHT on the estate of the
deceased quite apart from the effect of subsequent estates. The time it is
advantageous to execute a DOV very much depends on the exact circumstances
Agreed, except that if the OP dies within 7 years of making the gift
then it counts as part of his taxable estate, which might matter. Also,
if the OP is the deceased's spouse, then by giving up his legacy he is
also sacrificing his spousal exemption, which might matter. But that
latter scenario sounds unlikely.
snip
>So far as your specific comment is concerned, my understanding is that
>where A has an entitlement under the testator's will, ownership does
>pass to A. A DoV may divert the property before A takes possession of
>it, but A gets ownership. The DoV alters the trusts created by the
>will. It can't vary the will retrospectively to stop A getting
>ownership. I am happy to be corrected, of course.
It is pretty certain that a DoV stops the named beneficiary ("A")
getting ownership at least for IHT purposes. This is explicit in HMRC's
guidance:
"IHTM35011 - Instruments of Variation: introduction
In general law, a variation takes effect from the date of the instrument
and if it gave rise to a loss to someone's estate, there will be a
transfer of value. But provided the instrument satisfies the conditions
of IHTA84/S142, it will be treated for inheritance tax purposes as if
the redirection of property that formed part of the deceased's estate
(IHTM04029) had been made by the deceased. Where this applies, the
redirection of property is not a transfer of value, IHTA84/S17(a)."
Also
http://www.martineau-uk.com/publication_event/guides/pc/a-guide-to-deeds-
of-variation.pdf
"Rather than receive his inheritance and add to his own IHT problem, he
could make a Deed of Variation passing it on to his children (either
outright or in trust for them). It will be treated for IHT purposes as
though Maureen had left a gift in her Will directly in favour of her
grandchildren."
and
http://www.ts-p.co.uk/knowledge/publications/articles/deeds-of-variation
"For IHT purposes, the gift to the trust will be treated as having been
made by his late aunt, rather than by Peter, so the 'gift with
reservation of benefit' rules will not apply."
However, that leaves open the question of whether the property ever
"really" passes to A ("real" as opposed to being a mere HMRC pretence).
It seems unlikely; for example, if the property is land, then the
executor will use the DoV to redirect it to the alternative beneficiary
and A's name will never appear on the property register. So for to all
appearances at least he never owned it.
--
Les
Look, mate, can you please stop misleading the OP. The above is all
incorrect, but other posters have stated the correct position.
My point was that the beneficiary actually has to use a method the law
accepts in order to change ownership. Mere say-so declining the property
isn't enough. That is particularly so with land. That article gives a
specific method.
<snip>
> >> Why would the fact that A gave his sister £300,000 instead of
> >> executing the deed make any difference?
>
> > The gift diverted by A using a Deed of Variation, never passes
> > through the ownership of A. The Deed acts as an alteration to the
> > Will.
>
> As I understand it, the situation only arises in the special case where A is
> likely to die before A has an opportunity to actually give the property
> away.
At the bottom of the IHT calculation sits any gifts which A has made
during the last 7 years of his life. Usually there is no IHT to pay on
those gifts (up to £285K) but they push the remainder of the estate
(above £285K) into the realms where they will be taxed. So giving the
property away is insufficient to avoid a potential IHT problem.
>...If that is correct, the DoV method is merely a matter of timing. In
> the ordinary case, where A is not likely to die before the property comes to
> him or her, it will be simpler to let things take their course and for A to
> give the property to the sister. Not only is that relatively simple, it
> certainly avoids legal expense of a DoV, and avoids the need to ensure that
> HMR&C accept the DoV method.
>
> So far as your specific comment is concerned, my understanding is that where
> A has an entitlement under the testator's will, ownership does pass to A. A
> DoV may divert the property before A takes possession of it, but A gets
> ownership. The DoV alters the trusts created by the will. It can't vary
> the will retrospectively to stop A getting ownership. I am happy to be
> corrected, of course.
You have been corrected in this already.
>> They can disclaim the inheritance, and then the Will defines what
>> happens to the money. (I thought that's what I said before.) Anyway,
>> as you evidently don't belive me, here's a link to an article written
>> by the College of Law.
>> http://business.timesonline.co.uk/tol/business/law/article1559786.ece
>
> My point was that the beneficiary actually has to use a method the law
> accepts in order to change ownership. Mere say-so declining the
> property isn't enough. That is particularly so with land. That
> article gives a specific method.
But the article says: "Hence a beneficiary can always “disclaim” his
inheritance, provided he has not accepted any part of it, by writing a
letter to the executor."
So, what is your point?
I think his point is that there are rules with respect to
disclaimers, such as that they must be made in a certain way within a
certain time. Merely declining to take an inheritance without
complying with the formalities will not likely sufficie.
>
> Not a good idea at all unless the amount is small. It can cause extra
> Inheritance tax to become payable. The correct way is to execute a deed of
> variation that needs to be professionally done to ensure that HMR&C accept
> it.
>
> Peter Crosland
>
>
The amount is about £56k.
I think that's partly true and partly false. According to HMRC, one can
disclaim a legacy without any formalities, and that disclaimer is valid
in terms of ownership of the property. However, such an informal
disclaimer is *not* valid for tax purposes; for that, the disclaimer
needs to be made in writing and within two years of the death.
"IHTM35161 - In general law, a beneficiary has the right to
* renounce a gift made to them under a Will,
* disclaim their interest under an intestacy.
A beneficiary may disclaim by written disclaimer or by conduct ..."
[where "conduct" presumably includes any kind of behaviour that clearly
indicates a wish not to accept the legacy]
and
"IHTM35162 - Disclaimers: IHT requirements
In addition to satisfying the general law requirements (IHTM35161), the
provisions of IHTA84/S142 apply to disclaimers. This means that for IHT
purposes
* the disclaimer must be in writing (a disclaimer by conduct cannot
meet the conditions of IHTA84/S142) ... it must be made within two
years of the death ... "
--
Les
Thanks! Very interesting information.
So, to summarise: "a beneficiary can always "disclaim" his
inheritance, provided he has not accepted any part of it, by writing a
letter to the executor." :-)
What might be the desired outcome might be simple, even incredibly simple.
The legal requirements to achieve that outcome might not be so obvious.
For example, it now seems that the "disclaimer" must be in writing. For
anyone familiar with the law on the Statute of Frauds, that will be
familiar. Simple it is not. Legally, it is a gift of an asset. That's
probably why a deed comes into it. So, the law of deeds becomes relevant.
Did you say incredibly simple?
There is also the suggestion that it might not always have to be in writing.
Again, that will resonate with anyone familiar with the law on the Statute
of Frauds. And, again, simple it is not.
My question is why HMRC does this? It does not seem to reflect the general
law, so is it buried in some special legislation?
You are welcome to your views, but this is a legal NG. The above is not
quite all incorrect.
I understand that this is a HMRC-specific rule. My question is why is it
so, from a legal perspective?
Think again. There is a HMRC-specific rule that does something I find odd.
It does not appear to reflect the general law.
It is now reasonably clear that the issue is about a HMCR-specific rule. I
am asking why this rule exists, from a legal perspective.
It is now reasonably clear that the issue is about a HMCR-specific rule. I
am asking why this rule exists, from a legal perspective.
----------------------------------------------
To provide certainty in the taxation system whilst providing a relief from
double-charges to inheritance tax that could otherwise arise on a disclaimer
or variation of trust.
Chris R
Doesn't it? Who says?
>so is it buried in some special legislation?
I assume it's either in the 1984 act or maybe the 1925 act, but I can't
be bothered to look :)
--
Les
There is a more general legal point here: what is the legal situation if
person X wishes to make a gift to person Y, but Y does not want it? For
example, what if I published an advertisement in The Times stating "I
hereby gift my large collection of child pornography, my bomb-making
equipment, and my stash of crack cocaine to the Home Secretary."
Would the Home Secretary thereby immediately have ownership of all these
things and therefore be guilty of several extremely serious criminal
offences?
Or, as seems more likely, would he be able to say, "I did not explicitly
accept the gift, so I never actually owned these things"?
--
Les
What does the will say? It matters, because if you *disclaim* the legacy
then it must go to whoever the will names as the next in line for it if
your legacy fails; and if no-one is specified, then according to the
intestacy provisions, or into the residue, I can't remember which.
On the other hand, if you and the other beneficiaries agree to execute a
deed of variation, you can direct the legacy to your sister. It doesn't
cost anything, there are plenty of documents on the Internet by law
experts describing the necessary steps; or you could instruct a
solicitor, but I wouldn't bet on him getting it right.
The key point, I think, is that the deed must contain a statement by all
the signatories that they intend the provisions of IHTA 1984 s 142(1) to
apply to the variation.
--
Les
Who would disagree with that?
> whilst providing a relief
> from double-charges to inheritance tax that could otherwise arise on
> a disclaimer or variation of trust.
My question : is that relief provided merely by an official sitting
(metaphorically) under a palm tree, or by the rule of law?
As already posted, if you care to look at the Inheritance Act 1984 (1984
c.51) the relevant
provision will be apparent.
--
Robin
PM may be sent to rbw0{at}hotmail{dot}com
IIRC the law (for some purposes at least) is that with the gift of a
chattel the t/f of ownership is effected by delivery. So if Y does not
accept delivery the t/f does not take effect. I doubt very much that
posting something to the Home Secretary counts as "delivery" for this
purpose but I could well be wrong.
> For
> example, what if I published an advertisement in The Times stating "I
> hereby gift my large collection of child pornography, my bomb-making
> equipment, and my stash of crack cocaine to the Home Secretary."
I'd think it was probably a tax dodge :)
Would the Home Secretary thereby immediately have ownership of all these
things and therefore be guilty of several extremely serious criminal
offences?
Or, as seems more likely, would he be able to say, "I did not explicitly
accept the gift, so I never actually owned these things"?
-----------------------------------------------------
So far as I know ownership of such things is not an offence. Possession is.
Possession of an item or substance certainly requires an element of
knowledge of its presence and control over it.
My instinct is that you have to accept a gift for it to take effect, but I
don't have authority for that. It is possible in some circumstances for
property to vest in a person without his or her knowledge or consent.
Chris R
Usually, criminal provisions of that kind focus on possession rather than
ownership, and the form of possession is usually actual as opposed to
constructive possession. That may be the HS's get-out-of-jail card, without
doing anything artifical in interpreting the legislation.
It's section 142 of the IHT Act. It's a special rule that applies to the
incidence of IHT, and it does not reflect the general law.
No authority, because it's not correct. For example, gifts to children,
gifts to unborn children, etc etc. A gift is not held in suspense until the
person becomes aware of it and accepts or declines it.
> It is possible in some
> circumstances for property to vest in a person without his or her
> knowledge or consent.
In most circumstances. If the person making the gift has done all that the
law requires to make the gift effective, the knowledge or consent of the
person to whom the gift is made is irrelevant. A situation where the gift
might require knowledge or consent is a transfer of goods by actually giving
it to the person. In that case, refusal to take possession means the gift
fails. But a gift in a will or by deed of property may be perfected in law
regardess of the wishes of the beneficiary.
It is section 142 of the IHT Act ie a rule of law.
No authority, because it's not correct. For example, gifts to children,
gifts to unborn children, etc etc. A gift is not held in suspense until the
person becomes aware of it and accepts or declines it.
> It is possible in some
> circumstances for property to vest in a person without his or her
> knowledge or consent.
In most circumstances. If the person making the gift has done all that the
law requires to make the gift effective, the knowledge or consent of the
person to whom the gift is made is irrelevant. A situation where the gift
might require knowledge or consent is a transfer of goods by actually giving
it to the person. In that case, refusal to take possession means the gift
fails. But a gift in a will or by deed of property may be perfected in law
regardess of the wishes of the beneficiary.
------------------------------------------
You're right, of course, but I was thinking more in terms of immediate
rejection. I know charities sometimes reject gifts. What would the position
be in relation to onerous property, eg worthless land that carried chancel
repair liabilities, or contaminated land?
Chris R
An interesting question. I don't have a ready answer, but it would be
interesting to see the detail of such a situation. Presumably the donee
would have any personal liability that attached by aquisition limited to the
value (if any) of the land.
The underlying point is of course that gifts is one of those areas of
English law where possession is .......
Of course gifts to children (especially unborn children) might be
expected to be different in as much as there is likely to be a trust
constituted. (Am I dreaming that a deed used to avoid the trust in some
circs?)
>> No authority, because it's not correct. For example, gifts to
>> children, gifts to unborn children, etc etc. A gift is not
>> held in suspense until the person becomes aware of it and
>> accepts or declines it.
> Of course gifts to children (especially unborn children) might
> be expected to be different in as much as there is likely to be
> a trust constituted. (Am I dreaming that a deed used to avoid
> the trust in some circs?)
Such gifts are accepted by their guardians, which would satisfy any
legal requirement for this.
Yes but I thought we were now following a sub-thread from Big Les Wade
proposing to pass certain chattels to the Home Secretary. Did I miss
the point where he proposed to make it a bequest? Then again, on
reflection I suppose what he envisaged could prompt the thought "he's
got a death wish" so it might be implied ;)
Nonsense.
> The gift is not
> made upon the death of the testator but through the administration of
> the estate.
Nonsense. The administration of the estate is just that - administration.
> That distinction is reconfirmed by the tax treatment of
> income attracted by property within the estate during the period
> between the death of the testator and the distribution of the
> property by the estate.
The operation of tax laws does not confirm anything other than that taxes
will always be with us. Like agents provocateurs.
>> The gift is not made upon the death of the testator but through
>> the administration of the estate.
>
> Nonsense. The administration of the estate is just that -
> administration.
And if there are more debts than assets, the beneficiary gets
nothing. Or if there was some irregularity, the beneficiary may have
to share the bequest with other claimants. How is that an immediate
gift?
--
Stu
http://DownToEarthLawyer.com