I have an estate where father has inherited the entire estate from daughter under rules of Intestacy.
The father wishes to do a DOV to gift the deceased’s property to her partner who lives there as he feels this is the right thing to do.
The estate is subject to Inheritance Tax and the tax apportioned to the property is £260,000. The father wished the redirected gift of property to partner to be subject to inheritance tax so that he does not bear the tax on this redirected asset as residuary beneficiary. The partner can only afford to pay £116,000 as this is what he has received from a Life Insurance payment.
Can i draft a DOV giving a specific gift of the property clause subject to the recipient paying £116,000 of the tax due on the gift or will this be classed as consideration?
A preliminary point surely is that someone is going to have to pay the tax on the property. If the objective is for the daughter’s partner to have a subject to tax gift can he fund it without a sale, having only a smaller sum from the policy?
On an intestacy the tax will be payable primarily out of residue but the house may comprise the bulk of the estate, meaning that the house must be sold if necessary. Is the partner prepared to raise a mortgage for the rest of the tax?
By analogy, Para 16A of Sch4 FA 2003 specifically provides that a transferee who agrees to pay IHT does not furnish consideration for SDLT but in my view this would not apply where there is a variation. That needs an exemption and prohibits consideration under Sch 3 para 4.
I think it might be possible to redirect the house subject to the payment of only part of the tax i.e. £116,000 but the PRs must be able to pay the rest. If the father can pay it out of the rest it seems to work. It depends on whether the SDLT analysis reflects a true analysis of the legal position or whether it is a carve out for SDLT only
the father as residuary beneficiary is happy to pay the rest of the tax on the basis £116k is all the partner can afford. There are other assets which can pay this remaining tax.