Am I correct in thinking that if someone wishes to disclaim their entitlement from an estate, outside of the 2 year anniverary, then it is regarded as a PET by them for IHT purposes?
Is there a requirement for the Disclaimer to be in a specific form or with any specific wording?
Many thanks.
Martyn Dixon
Harold Bell Infields & Co
Yes, a disclaimer of an absolute gift in a Will after two years from death would be a PET by the recipient. The whole gift must be disclaimed, not part of it. The recipient must not have already benefitted from the gift.
There is no specific requirement for the Disclaimer to be in any form and it can even be made by conduct, but it would be best practice to have this in writing.
Kind regards.
Ihsan Ali
I Will Solicitors Ltd
There is a curious relationship between a disclaimer and a PET. A disclaimer is not without more a “disposition” within s1 IHTA 1984 so it can only be a transfer of value under s3(3) as an omission to exercise a right. Inter alia it must both diminish a person’s estate and also increase that of another person. While that corresponding effect is an essential link the amount of such increase is not specified so any consequential increase will do and there is no further link to the amount of the correlative diminution.
But a transfer of value is only a PET to the extent that the other person’s estate is actually increased : s3A(2)(b). So if the diminution amount is greater than the increase amount, the transfer of value will be its full diminution amount under s3(1) but only part of that will be a PET and the balance will be an immediately chargeable transfer as directed by s2(2).
In 53 years of practice I never encountered an actual disclaimer on the part of a client of mine or of anyone else. So disclaimers may be like the question in my degree exam paper: “The Law of Trusts and Estates. Discuss”.
Jack Harper
@ Jack Harper…in the olden days, was there not a time limit for exams? From reading your posts it sounds like you have yet to finish your degree exam paper! 
@Jack Harper The position could perhaps be looked at as follows. To omit to exercise a right implies that the right is held by the person concerned. I would push that as far as saying economically vested, not merely optative. If the act of not accepting the “chose” or right is considered an omission, that presupposes that the right is deemed possessed in some manner by that person, without their actually having it. That would be fallacious.
There is a point at which the value has to be fixed in an estate for it to be transferable and not merely be putative or optative. That is not easily fitted into the current fictions surrounding the term inheritance and transfer. The notion of direct seizin in the English law of land could have better supported taxing a disclaimer as a transfer of inherited value historically as it was by definition, vested. In the post 1896 environment the presumption of entitlement on death is less evident.
There are certainly arguments against the thoughts and the language which I have attempted set out and I await them with interest. However the term “disposition” may not automatically square with a disclaimer under s.3(1) to the extent that the right or property disclaimed is not yet in the “estate” of the person making the disclaimer. The onus may be on HMRC to show that s.3(3) is actually applicable. The potential estates of others might be increased, but not as a direct consequence of any “reduction” which in that instance has to be deemed to have been included in the disclaimer’s estate, when it hasn’t.
Peter Harris
While I regard the Manuals as scriptural exegesis by the Devil IHTM 14810 is interesting, although not the law and not something that Crown Counsel can be relied upon to find in his or her instructions as it is veracity-fluid.
Subject to that HMRC seem to concede there that some things are not a “right” whose exercise can be “omitted” but it is likely that expediency as usual overrides principle. A disclaimer only works in law by avoiding something entering into one’s estate in the first place but omitting to exercise is deemed to be a disposition, subject to what is meant by “right” and “deliberate”. There is also the curiosity that it is then confirmed as a deemed disposition so that it can be undeemed as a transfer of value under s10.
There is also the interaction with the waivers of ss14 and 15 which might not be dispositions anyway if not caught under s3(3) and might well not increase another person’s estate in a given context where the precise terms of those sections are not met.
An omission is defined as an “operation” for s268 (1) without any stuff about deliberate or increasing another’s estate.
None of this is likely to be regarded as an anomaly by HMRC as the official view is that like a UFO there is no such thing. Lord Denning was once castigated for “naked usurpation of the legislative function” but this is now regarded as purposive or contextual interpretation or judicial Ufology, making it hard to advise clients on predictable outcomes. I believe this to be often intentional on the part of the Legislature in order to maximise a skewed result in its favour i. e. punk legislation.
Jack Harper
The main issue is reading s.3(3) ITA 1984 with a simple mind:
“Where the value of a person’s estate is diminished, and the value…
is increased by the first-mentioned person’s omission to exercise a right.”
The amended English is quite clear. The person’s estate has to be diminished first. The same term “a person” appears also in (3)(b) where a settlement’s value is increased in order to amplify the fact that there has to be a transfer of a value to another person.
Different situations may lead to different results which is preferable perhaps to “outcomes” being a term of artfulness which should probably be left in the lexicon and the mouths of the fallen complainants in Paradise Lost…
I am happy to use “results” rather than “outcomes” in saying that a lawyer’s key role is to predict what judges will decide about how either of these follow from specific legislation. Statutory Interpretation is not simple: see Craies on Legislation 11th ed. pp 733-993. The judicial task, self-asserted, is to discern “the intention of Parliament”. Self-acknowledged, this task is made more difficult when it is readily apparent that often “Parliament” conducted no process disclosing any intention. The classic orthodox evaluation of the task is by Lord Nicholls in ex p. Spath [2001] 2 A.C. 349 at 395.
The Gaderene departure from the “cardinal” or “golden” rule of construing the plain words has gone too far, praying in aid purposive or contextual interpretation, towards exactly what Lord Denning was criticised for in 1951. In 1966 I attended a private talk by him and his own unashamed continuing approach, which appeared alarming and heretical in the extreme to us law students, has now been far exceeded. At the time he was accused of “Palm Tree Justice” by which was meant a forum where parties took their issue to a wise trusted sole arbiter who had carte blanche to adjudicate ad hoc on the basis of what he (inevitably he then) considered to be a just and fair outcome regardless of precedent or principle.
This is what we have now. It means that judicial outcomes, or results, of given statutory provisions are much less predictable for clients and the Legislature connives at this by creating vague broad brush law or. in the case of the GAAR, quasi-law with significant jurisprudence from a group of the Great and the Good underneath the famous figurative Tree.
Unlike the judiciary HMRC suffer from an institutional integrity deficit and adopt any interpretation which suits their immediate purpose. While it is acceptable for Counsel to advance any arguments for the client which are not preposterous in my opinion it is not acceptable, as being intellectually dishonest, for the Tax Authority to advance in correspondence or instruct Crown Counsel to advance convictions it does not actually hold just because, in the modern Judicial Lottery, there is a decent chance they might succeed and become case law. Advisers by contrast are expected to take a “credible view of the law”: PCRT para 3.2
I am watching current cases on the meaning of “dwelling” for SDLT purposes go through the appeal system and note that clients of mine regretfully settled theirs some years ago on the basis of HMRC arguments in correspondence that HMRC either now admit were wrong or plainly decline to advance in public. These included key settled positions that they claimed to hold but had never published in the Manual, despite finding time for numerous other amendments. Those clients feel even more retrospectively that they were deceived, over and above the exploitation by HMRC of the deterrent of the inevitable downsides of contested appeals.
While I am generally critical of the infantile contemporary clamour for ultimate certainty and clarity, in the context of the enactment of fiscal statutes and their judicial interpretation, I am a supporter of a lot more of both.
Jack Harper