How can I get the money?

September 24, 2006 2:11 AM

British Inheritance Tax question: help me foil a dying man's wishes.

Let us imagine three people : poor child, rich parent and richer grandparent. Richer grandparent dies and leaves wealth to rich parent. Can rich parent then refuse the money so that it skips a generation and goes straight to poor child.
These theoretical people live in Britain by the way. Thanks for any help, and please don't think me too much of a bastard.

posted by greytape to travel & transportation (8 comments total)

hmmmm ... IAAL ... but don't know UK succession law or death taxes as I am an AU Lawyer.

if there is a will and it leaves the wealth to the parent and the parent refuses the inheritance, and there is no other beneficiary in the will, the executor will be forced to split the wealth according to succession law (should be other grandparent, then kids, then grandkids???).

If there is no will then it is split according to succession law.

KISS principal dictates that parent should just accept the wealth and give it to the child ... but I assume that there is a tax reason to avoid this.
posted by jannw at 2:40 AM on September 24, 2006

Take a look at this BBC Tax and Investment article: Giving money to grandchildren.

One of the points that the article makes is that individual small gifts or by placing it in to a trust can reduce the value of a person's estate so that when it gets inherited, it reduces the inheritance tax burden.
posted by tommorris at 2:59 AM on September 24, 2006

Perhaps beside the point, but it seems to me that if a parent freely chooses to deed, gift, or create a trust to benefit the dispossessed, s/he is controlling the disposal of the bequest. Unless the deceased specifically disinherits the grandchild, how are his/her wishes being foiled?
posted by rob511 at 3:23 AM on September 24, 2006

KISS principal dictates that parent should just accept the wealth and give it to the child ... but I assume that there is a tax reason to avoid this.

The problem with this is that, if the amount is over £3000 and the parent dies with 7 years, the kid will have to pay inheritance tax for a second time, even if all the money has been spent.
posted by twine42 at 3:41 AM on September 24, 2006

IANAL, IIRC, etc, etc...
posted by twine42 at 3:42 AM on September 24, 2006

The parent needs to change the will using a deed of variation.
posted by markdj at 4:59 AM on September 24, 2006

Woah that deed of variation link just reminded me how different US and UK tax systems are. According to the link markdj provided, even if you disclaim the gift will get taxed at the higher rate of the adult. But still, assuming there's a gift tax it'd be better to disclaim than to accept and then give directly to your kid - that would lead to double taxation which is rediculously easy to avoid. Not to mention Twine42's point about the gift being rolled back into the estate and taxed as though it's from the estate of the parent.

Basically whatever you do, unless a lawyer tells you it's best after you argue with him/her, do not have the parent accept from the estate and then pass it on to the kid. I'm not a lawyer in the UK but I know something about the US estate tax system and would be very skeptical of any plan that included taking a gift and then passing it on. Disclaim and let it pass down or, apparently a better solution, use a deed of variation (though why rates of estate tax would differ based on the recipient, that's just beyond me.).
posted by lorrer at 7:14 AM on September 24, 2006

My father did this for me and my sister when my grandmother (his mother) died. I'm not aware of any extra tax that he paid though. Maybe the 'taxed at higher rate' bit refers to interest generated by the money while it's in the parents possession.
posted by markdj at 7:51 AM on September 24, 2006