At the risk of outstaying my welcome in this thread I add two other observations:
1 A gross absurdity is that where consideration is prohibited £1 of consideration is enough to ruin things. This ranks with another one such: that there is no proportionality between the value of GROB property and the quantum of the triggering benefit (though here there is the vague criterion of “virtual exclusion” to assist).
2 It just seems bizarre to me that a contract between A and B that B should “do” something (i.e. disclaim) unrelated to the acquisition, disposal or transfer of any property should have a property-based consequence, or rather non-consequence, albeit only for a fiscal purpose. Exacerbated by the fact that, if I am right, the disclaimer will be valid and effective at general law but not for IHT. So that the payer, A, gets what he wants, the disclaimer by B, but is mistaken and disappointed as to whatever fiscal outcome he or both expected.
It will not always be the case that A personally benefits from the substantive legal effect of B’s disclaimer. That effect may be that the benefit of B’s disclaimer flows from the diversion of property to C D and Uncle Tom Cobleigh or even to persons as yet unborn. I acknowledge that there are many similar elephant traps which could be avoided by timely accurate advice but I do not get the policy shibboleth that castigates consideration in s93 and s142 but not otherwise. Someone with greater access to case law may be able to cite authority that consideration for a disclaimer indeed nullifies the legal effect of a gratuitous disclaimer because obtaining it, or contracting to obtain it, is in law the receipt of a benefit. Perhaps one needs to go back to Blackstone or Maitland or even Oliver Wendell Holmes, if not Cicero.
Jack Harper
| jack jack harper
9 May |
David’s point is not pedantic at all. A disclaimer which is not of “settled property” under s93 can come within s142. HMRC even accept that some unsuccessful attempts at a variation, such as a disclaimer purporting to redirect the disclaimed interest, can still do that: IHTM35163. There is a time limit under s142 but not under s93. However, for IHT, consideration is outlawed in each case. Settled property does not include a QIIP despite its being part of the estate under s5(1A): s142(5).
It is clear that HMRC have in mind here (IHTM35110) what they call “extraneous consideration”. “These provisions apply mainly where, in effect, the beneficiary under a redirection made by a variation (or as a result of a disclaimer) purchases out of his or her own pocket a benefit from the person entitled under the deceased’s Will, etc. Its (sic) primary purpose is to ensure that spouse, civil partner or charity exemption is not available for property given to non-exempt beneficiaries”.The following examples make this abundantly clear. So creating or augmenting the interest of a spouse (or anybody else) by disclaiming or reducing an interest in the estate is accepted as the typical object of the exercise and to be disregarded is “consideration consisting of the making, in respect of another of the dispositions, of a variation or disclaimer to which [s142(1)] applies”: s142(3).
IHTM35093 says; “Most commonly, chargeable beneficiaries will give up benefits under the will in favour of the surviving spouse or civil partner, thus gaining the benefit of spouse or civil partner exemption”. HMRC accept that: "The ability to vary the dispositions on death together with the exemption for transfers between spouses or civil partners provides a number of opportunities for estate planning… In many estates, this may be no more than the beneficiaries redirecting property so as to make sure that the estates of spouses or civil partners make maximum use of the two nil-rate bands that are available and may apply to property passing by will or under intestacy or to joint property. In itself, this is inoffensive planning that simply makes best use of the exemption allowable in law. However, there are a number of schemes which seek to exploit the provisions of IHTA84/S142 by:
- gifts back to the original beneficiaries (IHTM35093) [with pointed comment on the use of powers of appointment, which no doubt would extend to DTs]
- the redirection of excluded property (IHTM35094) and
- creation of short-term interests for slightly longer than the statutory period. (IHTM35095).
The fatal mistake of providing consideration to another person to make a disclaimer is in my view only relevant for ss 142 and 93 IHTA and s62(8) TCGA. Unlike my wife I can accept being wrong but like it nearly as little.
1 I have conducted extensive research on the point as to whether consideration is fatal in general law. I am surprised at the dearth of coverage in major textbooks. Some do not deal with disclaimers at all (save in insolvency) and others do not even address what constitutes acceptance. Not surprisingly, the best coverage of the subject is Emma Chamberlain and Others’ magnum opus 5th Ed. 50-68 to 50-76A. In the first para it notes that “a beneficiary must not have accepted any benefit from the property” but without either citing authority or explaining the meaning (Homer nodding in this august context).
The rule that taking income from an asset or other intrinsic benefit, such as partial realisation of capital or use as security, is acceptance probably came down from Sinai with Moses or from the first Lord Nottingham, the “father of equity” and God’s legal representative upon earth, as he then was. But my challenge is that, statute apart, consideration is not acceptance of a benefit because the essence of a disclaimer is that the property in question is never owned by the payee. I fail to see how one can derive a benefit from it however advantageous it is to the payer to bring about the outcome and indeed their agreement may found an enforceable contract to disclaim. My wife, a woman on the Widnes omnibus, might see it as consideration but I as a lawyer do not.
2 The legal effect of a valid disclaimer is contested by no one. It has that same effect fiscally for CGT in general (not a disposal of an asset for a capital sum), income tax (not a settlement), SDLT (not a surrender or release under s43(3)(b) FA 2003). It is not a “disposition” for IHT in general so not a TOV and not an omission to exercise a right as the right simply never comes into existence: ss1 2 and 3(3). Which is why ss 14 and 15 are really only there out of abundance of caution.
3 A partition between LT and R for value is a surrender not a disclaimer, although a disclaimer is possible but not within s142 or s93 if a QIIP. So in my view it and a NQIIP disclaimer can be disclaimed for consideration. If it’s market the payer will be within s10.
4 Problems arise where the disclaimed property is excluded property. First under ss 47 and 48 IHTA. It is settled property so does s93 govern a disclaimer of it? The crazy answer is that it does yet an actual assignment of it for consideration is not a TOV under s3(2)!!! So what does s93 really mean by “becomes entitled to an interest in settled property” because a person who disclaims it never becomes entitled to the disclaimed property? Literally it is nonsense at law, perhaps on the legendary stilts. For the same reason s76 TCGA is irrelevant in principle. Then we have s6(1) IHTA excluded property with the added spice that the legal effect of a disclaimer may be governed by a foreign law (law of lication for immovables and law of domicile–yes still- for immovables) and will do so even if, pursuant to a past bout of extra-territorial megalomania, Sch A1 applies. I ask again: how can a disclaimer be liable to IHT when an assignment/settlemet/transfer of it would not be a TOV? s77 and Sch4 TCGA 1992 are also irrelevant without a disposal.
5 It was not always so. In the Old Testament days of estate duty and stamp duty, when I was a Minor Prophet in these, a disclaimer was outside the charge. General law prevailed. In the first case a gift inter vivos required a " voluntary disposition" under s2(1)(c) FA 1894, so a disclaimer for consideration below market was a gift but not a disposition. For stamp duty you needed to avoid a document. Although a documentary disclaimer was probably a “transfer” of nothing, avoidance was easy enough as an oral disclaimer or one made by conduct was legally valid and a solicitor’s file note was probative evidence (written acknowledgement by the parties was also to be avoided) but not a transfer of anything either. Throwing an executed document overboard while crossing the Channel would have been evasion, of course, though now it would attract a 5 star hotel stay free of charge.
Jack Harper
was too subtle. I was right.