Inheritance tax planning and section 11 - a missed opportunity?

It is fairly routine to speak to clients about potentially exempt transfers (PETs), surviving seven years from the date of a gift, or making use of annual allowances every year to assist with inheritance tax planning. However, there are some aspects of section 11 of the ITA that are much less frequently explored. For example, how often do solicitors take the time to review what a client is gifting to a spouse or child for maintenance, education and benefit? And, more importantly, are we reviewing this on the death of the client when looking at their estate? Gifts to minor children of a marriage should not be written off as chargeable gifts in a will.

One off

This is not an issue that comes up every working day, however it could be raised as a tax planning point more than one might think. It is definitely worth considering when there is a gift in a will to a minor child of the person who has deceased.   

Section 11 allows for a disposition of assets to be made to a beneficiary being a spouse or child of the marriage or step-child of the marriage. Such a disposition must be made for the maintenance, education and benefit of the beneficiary, provided they are under the age of 18 and in full-time education or over the age of 18 and in full-time education (only in the case of a child of the marriage).

This exemption is often only considered when estate planning is put in place during the lifetime of a client. But why not claim it when a client has left money to a qualifying person in their will?

This is not something that is normally reviewed when looking at the gifts made by the deceased in their will but something that needs to be checked. In the Inheritance Tax Act there is no distinction made between gifts made during the life of the client and those made after their death.

So why not give it a try?

Case in point

There seems to be little case law in this area, but the act does not state that it only relates to lifetime gifts and therefore something that should be tested with HMRC is on gifts made within a will. For example, if a client has left a gift to their daughter of £200,000 and that daughter is in private schooling when the testator dies, then it seems only right that a claim is made under section 11.

Section 11 does point out that a claim can only be made for the sum that equates to education, maintenance and benefit of the recipient, so if it is only reasonable to claim £100,000 of the gift for education, maintenance and benefit, only £100,000 will be exempt from inheritance tax.

The reason for such little case law on this area seems to be that very few people have tested this area with HMRC and so if the circumstances permit I think it is worth considering this argument. Although due to the lack of supporting case law, advising clients in their lifetime to rely on this relief on their death may be a little risky until the ground has been thoroughly tested.

Paul Coombs is a solicitor in the wills, trusts and probate department at Myers Lister Price www.mlpsolicitors.co.uk