Will the Proposed Change in Inheritance Tax affect divorce?

Resolution Foundation is calling for Inheritance Tax to be scrapped and replaced with a system that is harder to avoid and divide the money more fairly between the generations.

It seems that it would be possible to give up to £125,000 per person as a lifetime receipt of tax.

Inheritance has gradually crept in more and more to divorce cases. It cannot be relied upon unless pursuant to a Trust, or a testator no longer having capacity to change a Will but the Courts are certainly considering a situation where one person has significant inheritance prospects which could make a difference to future provision for them.

Would it help in divorce if either Husband or Wife could receive an immediate £125,000 from a parent or grandparent? It could certainly help divorce cases where money is very tight. It is often hard for both couples to have separate accommodation, particularly in expensive housing areas in London or the Home Counties. Even if there is very significant income during the marriage, it may very well have been used to support a lifestyle including school fees, rather than in the form of savings.

However, it is quite usual if there is significant family money for parents to help their offspring on divorce.

Where there is less money a parent might be willing to give a lifetime gift but one of the issues that may come up is what would happen to that if the recipient is involved in a subsequent divorce. The divorce itself will have made a family aware of this possibility and it is often the case the family members do not want the risk of what they see as their hard earned money will fall into the hands of a second spouse.

At the moment, under matrimonial law, there is no certainty, unless money is put in trust, of ensuring this.

If, say, the Husband receives a sum of money say £125,000 from his parents and uses it to buy a house. If he then re-marries and that house becomes the matrimonial home with his second Wife and, particularly if he has further children, on a subsequent divorce he may very well find that his second Wife has a claim to half of the equity in that house.

He can have a Pre-Nuptial Agreement and that does now have significant weight, but it does not bind the hands of the Court.

If the government want to encourage families to make lifetime gifts this would be considerably assisted in matrimonial law and provide some certainty of the recipient being able to retain this.

It is possible for money to be put in trust and depending on the terms of the trust the matrimonial Court may very well have to take into account that the monies are not accessible to either the Husband or the Wife in terms of Orders that can be made on divorce. However, trusts are expensive and have significant annual costs.

It depends therefore who this change in the Inheritance Tax law is being aimed at refers to encouraging family members to give money to their younger generation. However, from the broader spectrum of how this will work in practice it is hard to see that it will make a difference where there is significant wealth. In those cases there is usually very significant Inheritance Tax planning. If the intention that the think tank of the Resolution Foundation has said that the current system should be replaced with a fairer system that would be “harder to dodge” there would need to be far more significant changes than ??????? £125,000 lifetime gifts.  

CONTACT MARILYN

If you would like more information or advice relating to this article or a Family law matter, please do not hesitate to contact Marilyn Bell on 01727 798066 or 07725 372256. 

Read our latest Divorce & Family Law Views and Insights
Good coverage in private law children and financial work, so they are able to offer a full service to clients.
The Legal 500
Divorce and family law image showing 2 red chairs
Views & Insights
Divorce, money, and children

Are you being told the truth?

Read More
SA Law Red Mug Coffee
Views & Insights
Honest answers - financial settlements for separating and divorcing couples

No matter what anyone tells you, there is never one ‘single truth that works for everyone’ when it comes to relationship breakdown and divorce.

Read More
Child holding hands with parent - SA Law's Dignified Divorcee
Views & Insights
Honest answers - children arrangements for separating and divorcing couples

We explore some common misconceptions about how the courts decide on the best arrangements for children.

Read More
SA Law Red Mug Coffee
Views & Insights
'I can transfer money to a trusted friend and it cannot be counted as a marital asset'

As part of our series of FAQs on common assumptions in separation and divorce, Bindu Malkan looks at concerns around asset transfer

Read More
Child holding hands with parent - SA Law's Dignified Divorcee
Views & Insights
'Can stop my ex introducing the children to their new partner?'

As part of our series of FAQs on common assumptions in separation and divorce, Simran Gupta considers the difficulties surrounding new relationships

Read More
Divorce and family law red chair SA Law
Views & Insights
No-fault divorce: It’s time to finally end the blame game

Divorce specialist, Julie Cohen, discusses ‘no-fault’ divorce law, which is now due to come into force in April 2022.

Read More
I found SA Law to be very organised and – importantly for me – they were very transparent about the costs, something I found very refreshing from a law…
The Legal 500

© SA LAW 2021

Every care is taken in the preparation of our articles. However, no responsibility can be accepted to any person who acts on the basis of information contained in them alone. You are recommended to obtain specific advice in respect of individual cases.