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Tony Wickenden: IHT when it’s unclear who died first

A husband and wife died within a short space of time but uncertainty around circumstances has left two step-sisters disputing the inheritance from the deceased couple

The High Court has recently considered a case involving:

  • a couple who died from hypothermia in 2016;
  • arguing stepsisters;
  • a disputed £300k inheritance; and
  • a 94 year old piece of legislation

It grabbed extensive headlines in the popular press as well as the broadsheets.

The case represents a good opportunity to review the law that applies when a couple dies in circumstances where it is uncertain which of them died first. The facts are actually quite sad.

John and Ann Scarle, who each had children from previous marriages, died from hypothermia at their home in Leigh-on-Sea, Essex, in October 2016.

The children from each marriage are now in dispute over who inherits the jointly owned home of the deceased couple.

The family of whoever survived longer is set to inherit the house on the basis that the interest of the first to die passes to the survivor and it will be the will or intestacy of the survivor that determines the destination of the property.

The relevant law is section 184 of the Law of Property Act 1925. Broadly speaking, under this provision, where a couple dies in circumstances where it is impossible to determine who died first, the younger is deemed to have survived. Mrs Scarle was 69 when she died and Mr Scarle was 79. So, assuming it was impossible to tell with certainty who died first, Mrs Scarle would be deemed to have survived with “her side of the family” inheriting under her will or intestacy – as appropriate.

Mr Scarle’s daughter, Anna Winter, insisted that her father probably survived longer as he was fitter, but Deborah Cutler, the daughter of Mrs Scarle, claimed the order of deaths could not be determined and so the Law of Property Act deeming provisions should apply. This would mean that the legal presumption under the Law of Property Act would then be that her step-father, who was older, died first, meaning that she and her brother, Andre Farley, should get the house.

The High Court heard the couple bought the house in 1988 after five years together, using the proceeds of sale of Mrs Scarle’s previous home.

Mr Scarle was his wife’s full-time carer during the last decades of their life after she suffered a stroke in around 1998. Mrs Scarle required a mobility aid to walk around inside and a wheelchair when outdoors, whereas her husband had no problems getting around.

Cutler’s barrister, James Weale said it was likely that at least one of them was alive on October 7, the date of their 26th wedding anniversary, because a card sent by Cutler was found opened. But he said there is “no direct evidence” of who succumbed to hypothermia first.

With the presumption under the law clear the decision will turn on the facts. The strength of the evidence for who died first will clearly be crucial to this decision.  The judge has reserved his ruling on the case until a later date.

Commorientes

Special rules apply where two or more persons die in circumstances where it is impossible to tell who died first, referred to as simultaneous deaths. The legal term for such a situation is “commorientes”.

Before considering how IHT operates in such a situation it’s essential to consider the position under the law of succession.

I mentioned where a couple dies in circumstances where it is impossible to determine who died first section 184 of the Law of Property Act 1925 states the younger is deemed to have survived.

Assuming the presumption applies in a particular case, then its operation could give a rise to a double or multiple charge to IHT. However, the operation of this rule is voided for the purposes of IHT because of section 4(2) IHTA 1984. It states where it is not known which of two or more persons who have died survived each other or others, they shall be presumed to have died at the same instant and therefore the estate of the younger person is not increased by the assets deemed to pass from the older person.

The fairness of this provision is illustrated in a situation where a father and a son die simultaneously and it was not certain who died first. If the father leaves his estate to his son, then the father would be (under the presumption) presumed to have predeceased his son and the tax would be charged on the father’s estate accordingly. The property would then be treated as having passed to the son and would then devolve in accordance with the son’s will or intestacy.

Save for the provision in section 4(2) (and the application of quick succession relief), the tax would be charged twice, first on the assets passing originally from the father to his son and then from the son to his beneficiary. As it is, thanks to section 4(2), tax is only levied once on those assets, (namely on the transfer from the father to the son) and, for the purpose of calculating IHT on the son’s estate, the assets transferred from the father are ignored.

In practice, the simultaneous deaths provision would be relevant mostly in cases of married couples/ civil partners. The effect of the interaction of section 4(2) IHTA 1984 and section 184 of the Law of Property Act 1925 is that, provided no survivorship clause applied, no IHT is payable at all in respect of the assets of the elder spouse/civil partner passing to the younger spouse/civil partner – the spouse/civil partner exemption will apply on this transfer and, for the purposes of calculating IHT on the estate of the younger spouse/civil partner, these assets will be ignored.

A survivorship clause is where, for example, it is provided in their wills that the surviving spouse will only benefit if he or she survives the other spouse by a specified period.

Clearly, if for other reasons a survivorship clause is recommended, there should be a proviso that it should only apply if one spouse/civil partner dies before the other, i.e. not in the case of simultaneous deaths. Alternatively, it may be possible to remove the survivorship clause from a will by means of a deed of variation. However, this may be difficult if, for example, some of the beneficiaries are minors.

If a survivorship clause is desired in a will then consideration should be given to a proviso that it will not apply where the order of deaths is unknown.

Example

Peter and Susan are married and live in Devon. Peter is 10 years Susan’s elder. Their estates are worth £600,000 each. They have made no lifetime gifts. They die simultaneously in an accident on 30 September 2019. Their Wills do not include a survivorship clause and they leave their assets to each other on the first death, and otherwise to their adult children.

Applying the rule in the Law of Property Act 1925, section 184, Peter is deemed to have died first, so his estate would pass to Susan. However, for IHT purposes, the rule in IHTA 1984 section 4(2) means that John and Susan are assumed to have died at the same instant.

HMRC’s approach is to treat Peter’s estate as being subject to the spouse exemption, but Susan’s estate is treated as excluding Peter’s estate. Only Susan’s estate of £600,000 is subject to IHT.

However, in addition to Susan’s own nil rate band of £325,000 being available, Peter’s unused nil rate band of £325,000 is also available upon the making of a claim by Susan’s personal representatives. The overall result is therefore that no IHT is payable on Peter or Susan’s estates, and that assets worth £1.2 million in total pass to their adult children.

In cases where there is a survivorship clause in the wills of husband and wife (or civil partners), it may be worth considering the inclusion of a condition excluding the operation of the survivorship clause in “commorientes” circumstances (i.e. on simultaneous deaths) in the will of the elder spouse or civil partner. This is a point to consider when, for example, carrying out an IHT review for clients who are either married or civil partners.

Tony Wickenden is joint managing director of Technical Connection (a St James’s Place Wealth Management group company).

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