Which of clause 49A(3) IHTA 1984 and the last paragraph of 18(3) IHTA 1984 takes precedence?
Or, put another way, if a clause in my will says “to pay the income to my wife for her life if she survives me by 30 days” is that a spouse exempt IPDI, or not (assuming she does indeed survive)?
S18(1) applies, and the inter-spouse exemption is not denied (under s18(3)(a)), where a survivorship clause subsists as provided for in the proviso to s18(3)(a). See also s92.
I would therefore say under your clause it is a spouse exempt IPDI.
Malcolm Finney
@MalcFinney Brilliant, thank you.
Kind regards, Andrew
Who would be entitled to the income if any that might arise during the 30 day period? We are not told whether the life interest is in specific property or residue, though the latter seems more likely, but apparently it does not matter. Either type of contingent gift, whether specific or residuary, carries the intermediate income, whether it is of personalty or realty (or “land” after ToLATA 1996 ss1 and 3). The authority for that is a combination of s175 LPA 1925 and the pre-1926 case law it left unaffected.
So any actual or notional income arising during the 30 day period would belong to the life tenant who survives it. So the life tenant would fulfil Condition 2 (as well as 1,3 and 4) of s49A IHTA 1984 by becoming “beneficially entitled to the interest in possession on the death of the testator or intestate” retrospectively by applying s91. A life tenant who does not survive will not be entitled to capital (so, apparently, no transfer to exempt but see later) under the Will and the remainder or gift over provisions will operate, or a partial intestacy if the drafter was not on the ball. But it does not mean that such a spouse did not have an IIP and IPDI in a settlement for the short period of survival by a transfer within s18 and with s80 applying and being sufficient to oust s144. In my view you need to be within s92 and its 6 month limit to overturn that outcome.
s18(3) merely clarifies that this is so by excepting a spousal transfer from its initial denial of exemption in subsection (3)(a) provided the period does not exceed 12 months. Does this mean that spouses as well as non-spouses and non-civil partners need to rely on s92(1) which has a 6 month limit? What if the specified period is greater? Where s92 does not apply a survivor of the longer period has an IIP (and an IPDI) under the general law from the end of the administration period and thus from the testator’s death under s91. One who does not survive has it for the same reasons but only from the testator’s death until his own. So in theory the entitlement to income from such short-lived IIP has created a settlement, sufficient to oust s144 in a will trust, and so cause a chargeable termination of the IIP-IPDI.
The effect of s18(3) is that for spouses or civil partners where the period exceeds 12 months the outcome is exactly the same but the spouse exemption is lost. Spouse transfers are excepted from s18(3)(a) but not (3)(b). So the spouse who survives has always had an IIP but no spouse exemption, the trust is not a RPT and s80 applies but not s144. If the spouse does not survive the capital never vests but the spouse remains entitled to the intermediate income, the settlement created is not a RPT and the death is a termination of the IIP-IPDI with s80 applying and s144 ousted.
Unless one can argue that a settlement never commenced under s48A. I doubt HMRC would accept that since a valid trust surely subsisted from the testator’s death notwithstanding the contingency and the alternative view would entail that the position could be in limbo until the contingency was satisfied or failed, however long the specified period. It would follow that, if it does fail, the vesting of the remainder or gift over could be a chargeable event.
S18 whether it applies or not on the facts does not affect the separate issue that you need s92 for the reading back operation that eradicates the effect of the intermediate income entitlement while the contingency period is on foot in the event that it fails
A final curiosity is what happens if the specified period exceeds 12 months in a spousal transfer but the spouse survives for less than 6 months. s92 only applies if the specified period does not exceed 6 months.
This emphasises that failure by the drafter to understand the two survivorship rules and either follow or completely avoid them could have unexpected results. One muses that contingent gifts which are settled for a life interest are perhaps worse than avoiding the contingency. Again indicating the folly of those who engage on DIY projects or enlist the aid of snake oil salespersons.
Jack Harper