Mon 09 Jun 2014
The new Inheritance and Trustees’ Powers Act 2014 (ITPA 2014), due to come into force on 1 October 2014 includes changes affecting how:
These changes apply to individuals domiciled in England and Wales at date of death. The changes are of no relevance to intestate deceased individuals domiciled in Scotland or Northern Ireland, nor to trusts established under the laws of Scotland or Northern Ireland.
These are the main changes that have possible tax consequences:
| current rules | new rules |
| deceased married but without issue (children, grandchildren etc.) | spouse, civil partner, parents and siblings may all share | spouse or civil partner inherit all absolutely |
| deceased married, with children | spouse inherits all chattels absolutely, plus a life interest in possession in half of the statutory legacy (£250k) | spouse inherits all of the personal movable property plus half of the statutory legacy (£250k) absolutely |
This change has potentially the greatest effect because certain items which would pass to the surviving spouse or civil partner under the current law will not do so under the changed law. The term “personal movable property” will replace “chattels” in the Administration of Estates Act 1925. The replacement is overdue as can be seen from the following:
current definition of “chattels” | new definition of “chattels” |
| “carriages, horses, stable furniture and effects (not used for business purposes), motor cars and accessories (not used for business purposes), garden effects, domestic animals, plate, plated articles, linen, china, glass, books, pictures, prints, furniture, jewellery, articles of household or personal use or ornament, musical and scientific instruments and apparatus, wines, liquors and consumable stores, but do not include any chattels used at the death of the intestate for business purposes nor money or securities for money: | “tangible movable property, other than any such property which—consists of money or securities for money, orwas used at the death of the intestate solely or mainly for business purposes, orwas held at the death of the intestate solely as an investment:”. |
The change in the definition of chattels from a prescribed list is a reasonable modernisation but the exclusion of investment assets will change the assumptions and may affect the tax liabilities.
This will affect married couples with children because investment assets that do not fall within the statutory legacy will form part of the residuary estate. This could be particularly important in the case of individuals who own movable property that might be regarded as an investment such as classic cars, works of art or antiques who have not made wills.
Individuals who have made wills disposing of their chattels on the assumption that the term includes all their investment assets but now such assets risk falling into residue and may even be dealt with as if on intestacy.
Trustees will have greater freedom to distribute trust assets. In particular trustees:
Some trusts already contain specific provisions giving trustees those powers but not all. This highlights the need to know and understand the terms of any trust before giving advice.
These changes reinforce the need to:
Appropriate legal and tax advice should be sought before changing wills.
Power Adhesives Ltd. almost came unstuck when, under the guidance of their advisers, the Company adopted an inappropriate arrangement to remove the possible problem of having to repay a director’s loan account on death. The arrangement made, for non-tax reasons, would have created an IHT liability on an amount far greater than the loan itself. […]
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