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Stealing from infants

The sad death of Jade Goody on Mother’s Day focused our minds on some of the issues that would inevitably be overlooked by the "Red Tops".

Miss Goody was reported by the Press as having her young sons’ welfare as her main concern towards the end of her life. The layman will no doubt vaguely assume (if he gives the matter any thought at all) that young dependent children inheriting on the untimely death of a single parent (or of both parents) must surely be to some extent protected from the full rigours of IHT. In fact, however, that iniquitous levy makes no special provision for relief in such cases; its rapacity extends to demanding its pound of flesh even from an estate bequeathed to a babe in arms. Of the other countries that impose a form of IHT, some (such as France) afford "consanguinity relief" so that the rate of tax is reduced for close relatives such as children. Not so here: the largest beneficiary of Miss Goody’s estate may well turn out to be the state: probably not quite what she had in mind.

What, then, may be done in such cases? Well, marriage certainly helps. Shortly before her death Miss Goody had married Jack Tweed. She would no doubt have been advised of the need to make a new will since, unless made in contemplation of marriage, a will is automatically revoked. And that marriage afforded the opportunity to mitigate IHT since spouse exemption (normally unlimited) applies not only to any assets left to Mr Tweed outright but also to any left on what are now called "immediate post-death interest" trusts. Under the latter he would not necessarily ever be entitled to capital and it might be that the children’s interests could be accelerated in an IHT-efficient fashion.

Other than that (and of course marriage will not always be an option) the possibilities are rather limited. Life insurance should routinely be written in trust so as to fall outside the death estate altogether; and use may be made of what is in our view an under used provision which effectively exempts lifetime gifts that are made for (broadly) the maintenance of children. HMRC’s view has always been that this particular provision applies only to lifetime gifts and not to assets passing on death; but gifts made shortly before death and in contemplation of it may nonetheless qualify for the relief.

If you would like to discuss these aspects in more detail please contact Terry Jordan on 020 8922 9360 or terry.jordan@bkltax.co.uk.