There aren’t many people in the UK who like the idea of inheritance tax – it seems that it’s just the politicians who are keen on it. But what can be done about it? Surely it is something that must simply be paid and be done with?
Not necessarily. There is an inheritance tax loophole that more and more people are taking advantage of.
It all relates to the ‘deed of variation’. The dead of variation allows the beneficiaries of a will to redirect the assets left to them to other people. But how does this help?
Firstly, it means that the inheritance can be given straight to those who might have a more immediate need for it such as grandchildren rather than children. Secondly – and perhaps more importantly in many respects – it can reduce the overall inheritance tax liability for the family. It effectively diverts wealth away from an estate that is already close to the inheritance tax liability threshold, and it means that the estate won’t be taxed twice.
There are certain criteria that need to be met for this to happen, however. The changes must be made within two years of the death. All the beneficiaries within the will must agree to any changes made, otherwise it cannot happen. They must all sign the variation. The variation deed must be very clear about who is to inherit, and everything must be set out in writing. It should also contain a stamp duty exemption certificate if any stocks or shares have been changed. If the changes are being made with regards to inheritance tax or capital gains tax, there must be a signed note to that effect along with the deed of variation.
In the past, the contents of someone’s estate was most likely to go to their children first, and other family members and friends second. A recent study by pension firm Royal London now shows that as much as £400 billion is set to skip a generation, and pass from grandparents to grandchildren instead.
Either this, or children are receiving inheritances from their parents, but are immediately passing it on to their children as they are seen to need it more (and it is often used for mortgage deposits, for example). The ‘sandwich’ generation of people between 45 and 64 are often relinquishing their claim to any inheritance, even if the grandchildren are not explicitly mentioned within the will.
But the amount of money left behind is decreasing as well. This is because grandparents are giving their children and grandchildren the money they need while they are still alive, thus reducing any inheritance left over.
The majority of Britain’s homes are owned by the older generation, with the younger generations renting from them. If the country is to re-establish its housing market, then these gifts or inheritances from grandparents could be the way to do it. The figures at the moment shows that 45 percent of ‘babyboomers’ (people born in the 50s and 60s) owned their own home by the time they were 25. In contrast, only 25 percent of ‘millennials’ (people born in the 80s and after) owned their own home by the same age.
In 2004, a woman named Melita Jackson left £486,000 to animal charities. Her daughter, Heather Ilott, took the will to court in order to get a share of this estate – the will did not initially feature her at all. The pair had fallen out after Ms Ilott had eloped at the age of 17. She went on to have a long and happy relationship, and five children with her husband. But Ms Jackson could never forgive her daughter for what she had done.
Eventually, after many months, the Court of Appeal agreed that Ms Ilott should receive one third of the estate.
What does this mean in terms in will writing and inheritance? The experts are predicting that this could mean that people will not be able to disinherit their children unless they give a detailed reason why. Simply missing them out of the will without any additional documentation to explain why could mean that, if the children take the will to court, they will be given part of the estate. It will make it much easier for those who have been disinherited to challenge the wills of their parents.
The judge in this case ruled that Ms Ilott should have one third of the estate as her mother had not left her ‘reasonable provision’.
People love to collect things. It seems to be a part of human nature, and many of us love to have a small collection of interesting objects. It could be anything from stamps to postcards to action figures… Whatever catches your eye really. But for most of us, our collections are little more than something to do. Something of interest. And if we do decide to include them in our will, it is not usually for the beneficiaries to gain any monetary value from them.
But this is not always the case.
Bob Postal collected toy soldiers. His collection spanned 30 years, and he had more than 10,000 when he died in September 2015.
He left the collection to his wife, Carole, who, although fond of the items because they had been Bob’s, and because they had always been a part of their life together, did not know what to do with them. It is likely that she would simply have left them in their boxes and cabinets if a friend had not phoned her up to tell her about a news progamme she had just seen.
The programme had been called ‘Strange Inheritance’, and it was all about a man who left a collection of toy soldiers, much like Bob Postal’s, to his family. The family wanted to sell them which, as it turned out, would be a good idea because they were worth hundreds of thousands of dollars.
Carole Postal wrote to the programme herself to tell them about her collection, and she was featured on an episode entitled ‘Toy Soldier Story 2’. She told viewers that when she and Bob had first got married he had insisted that they buy an apartment with two bedrooms rather than the one they needed. When Carole asked why, Bob told her about his toy soldier collection. Carole said she never minded as long as ‘the guys’ (as Bob called them) remained in the soldier room.
Postal’s collection has been valued at over $300,000, and experts say it is one of the biggest collections in the world. But Carole does not want to sell them, and has placed half of the collection in the New York Historical Society. The other half is in a children’s museum in Rochester, New York.
A woman from Ashford, Kent, received a £400,000 inheritance and was then jailed for two years. These two events may not seem related, or the whole thing may seem rather nonsensical, but there is, in fact, a link between them. And it makes perfect sense in the end.
The problem was that Patricia Boaden concealed the large windfall she received, and continued to claim over £50,000 in benefits. She claimed the sum over a period of four years, even though at the same time she used her inheritance to purchase a holiday home near Disney World in Florida, which she rented out for £1300 a week.
When applying for benefits, one of the questions asked was whether Ms Boaden owned any property, land, or holiday homes either in the UK or abroad. Ms Boaden answered no, even though she had in fact owned the Florida home for a year before signing up for the extra cash.
Patricia Boaden’s defence was that she had been intending to put the money into a trust for her children, so she didn’t feel it really belonged to her. But this doesn’t account for the fact that Ms Boaden neglected to tell the council that she had a business – Sunshine and Blue Skies Escape – which had bought the property, giving her a profit. Neither did she mention that she had started and sold another company, Groundcare Solutions, which had brought her around £100,000.
Not only has Patricia Boaden been jailed for two years, but she also is under financial investigation, and will need to pay back the money that was given to her by the council.
So the moral of this story is: don’t try to hide an inheritance that you receive because if and when you are found out, the punishments can be severe.
The richer are going to become richer, and the poorer poorer, and it’s not just to do with income. A lot of it is linked to inheritance. It is said that half of the country are set to inherit large amounts, whereas the other half will inherit nothing, or very little.
The study comes from the Institute for Fiscal Studies (IFS) who has said that the reason inheritances are, in some cases, growing hugely, is down to house prices. When property prices rise, and those properties are left to relatives who go on to sell them or even keep them for the price to rise even further, they can make a rather healthy profit.
The IFS has said that around half of Britain’s young people will inherit about 90 percent of the country’s wealth in a few short years. At the moment, 72 percent of people say that they expect to inherit something from their parents. Just a decade ago, that number was at 60 percent.
These figures mean that the inequality between the ‘haves’ and ‘have nots’ will only widen over time, making the country potentially unstable because so much of its wealth will be wrapped up in a relatively small number of people.
Another worry is that the big cuts to inheritance tax that David Cameron unveiled are continuing under Theresa May. This is even though it will actually only benefit a small number of people, but it will affect the country by not bringing in as much money as it once did. The very richest people will effectively be receiving a tax break whilst our essential services are cut.
A Bradford court recently heard the case of a 51 year old woman – Maxine Forster – who, along with her sister, was given power of attorney over their mother. They had arranged this because their mother, Betty, was beginning to suffer from dementia.
However, it was claimed that Maxine stole £50,000 from her mother. She is alleged to have done this over the course of six years (between 2006 and 2012) by taking small amounts at a time. This then impacted on the amount of money that was left when Betty died, and therefore Maxine’s sister, Elaine Welch, was unable to receive the inheritance that would have been due to her. Sadly, Elaine died in 2015. However, her husband continued the court battle as he believed she would have been owed money, and it was in the interests of justice if nothing else that Maxine was punished.
Mr Welch has even suggested that the stress of the situation caused Elaine’s cancer to return, after she had previously beaten it.
The judge who heard the case sentenced Maxine to 8 months in jail, although the sentence was suspended for a year.
The UK’s population is aging and increasing. That means that more and more people will eventually need residential care, and that can cost many hundreds of thousands of pounds. That can be taken out of someone’s savings and assets, and in turn that means that their children’s inheritance can be severely reduced.
Since care homes are means tested, if you have over £27,000 capital per annum, you will have to pay. For many, their initial thought is that they should hide their assets, or give them away as gifts so that they don’t get swallowed up in the care system. But is this the right thing to do if you want to protect your children’s inheritance?
There is really only one big ‘don’t’ when it comes to trying to prevent any inheritance from being swallowed up by the government and that’s don’t give your house to your children. It may sound like the ultimate solution, but it’s actually very bad news. It even has a name – the deprivation of wealth. Your local authority has the right to check over your financial records, and they will discover anything along the gifting lines. If the authority believe that you deliberately gifted the property to avoid paying fees, they can reverse the gift, and you will potentially lose it all.
As for the ‘dos’, one good idea is to become joint tenants. For married couples, the ownership details of a property can be changed so that rather than being join owners, you will be tenants in common. This means that within each person’s will they can leave their half of the property in trust to their children – and not to one another. This means that if one half of the couple dies, the other person can stay in the house. However, if they did need to go into a care home, only half of the property would be valued to be taken into account.
Another definite ‘do’ is to appoint a lasting power of attorney. An LPA is someone who is given the power to make decisions for you should you become unable to do so yourself. If you still jointly own your property when you need to go into care, but are unable to make any decisions for yourself, the LPA will be able to help your partner and the inheritance too.
A seven year jail sentence has been handed down to a man who carried out a scam that revolved around a supposed inheritance, and duped two people out of almost $2.4 million.
Don Brendan Robert was given the long prison term so that it could act as not just a punishment, but also as a deterrent, as more and more of these kinds of scams are being carried out. Robert pleaded guilty to just 25 charges of fraud, although he was charged with a total of 450.
Robert used the money that he scammed out of two separate men to fund a lavish lifestyle, and pay off previous debts. The scan revolved around the lie that he had been left a large amount of money by a relative, but that probate was taking a long time. Due to this, the managed to persuade two gentlemen to lend him large amounts of money after promising them that he would not only pay them back, but give them a percentage of his ‘inheritance’ once it came through.
Robert continued these lies for three years, spinning more and more elaborate tales as to why the inheritance had not yet come through. The main problem was that these imaginary funds had been seized by the Singapore government, and had been frozen by the Commercial Affairs Department.
Robert’s scam is thought to be the largest ever carried out in Singapore.
Sometimes it really is a matter of being in the right place at the right time, and the old adage of location, location, location really does pay dividends. Literally in the case of the residents of a Spanish village called Cerezales del Condado.
This tiny little village can be found in the north west of Spain, in a province called Leon. It is unremarkable in most ways, although a pretty little place. However, when the founder of Corona beer, Antonio Fernandez, died, he left everyone in the village a little something – a little something that added up to around £2 million each.
Fernandez died in August 2016 at the age of 99. He left school at the age of 14 when his parents could no longer afford to pay the fees, but that didn’t stop him from amassing a huge fortune that is estimated to be in the billions through the Corona beer brand which is the second most imported beer in America. Even after he retired, Fernandez remained honorary chairman of the board from 2005 until he died.
Part of that fortune – approximately £200 million of it – was left to the residents of Cerezales del Condado, where he had been born and where he had spent the early years of his life in abject poverty.
The villagers are hailing the man as a hero. The area is not a wealthy one, and the majority of them residents have never had much money at all. Now they are overnight millionaires.
Even the former king of Spain, Juan Carlos, acknowledged Antiono’s generosity through his life.