Disclaiming a bequest

By Tolley in association with Peter Gausden, Consultant Solicitor at Rowlinsons
Trust_tax_img10

The following Trusts and Inheritance Tax guidance note by Tolley in association with Peter Gausden, Consultant Solicitor at Rowlinsons provides comprehensive and up to date tax information covering:

  • Disclaiming a bequest
  • The general law and disclaimers
  • Inheritance tax and disclaimers
  • Inheritance tax and disclaimer of an interest in settled property
  • Capital gains tax and disclaimers
  • Income tax and disclaimers
  • Stamp taxes and disclaimers

The general law and disclaimers

If a beneficiary of a gift under a will or intestacy refuses it before acceptance, this amounts to a disclaimer. The property then devolves to the person(s) next entitled according to the terms of the will or intestacy and so, unlike a variation, it is not possible for the person disclaiming to redirect the property or control its ultimate destination.

An effective disclaimer operates as an avoidance of a gift rather than as a disposition which re-directs the subject matter to someone else. Before disclaiming, it is important to find out what the effect will be. As a general rule, if a specific gift or legacy in a Will is disclaimed, it will fall into residue and the beneficiaries of the residuary estate will take the disclaimed gift in the appropriate shares.

If a gift of residue is disclaimed and the Will includes a substitutional gift in the event of failure of the gift for any reason, the disclaimed share passes according to those provisions. If there is no effective substitutional gift, the disclaimed share of residue will be treated as a partial intestacy. It follows that if a gift of the whole estate is disclaimed, full intestacy ensues.

Administration of Estates Act 1925, s 46

If an entitlement under intestacy is disclaimed, the inheritance is treated as if the disclaimer had died. It would therefore pass to other members of the same group, the descendants of the disclaimer, or the next entitled group ― depending on who the survivors are.

AEA 1925, s 46A as amended by Estates of Deceased Persons (Forfeiture Rule and Law of Succession) Act 2011, s 1 (subscription sensitive)

See the Intestacy guidance note.

This guidance note covers the inheritance tax treatment of a disclaimer and briefly considers the consequences of a disclaimer in relation to other taxes.

More on Changes to the distribution: