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GAZETTE
APRIL 1979
amount of the legacy but also on the freedom from Tax
bequest thus giving the "grossing up" effect.
A factual example of a specific situation was precisely
as follows:-
'C' left a legacy of £60,000 to Ms. Jones absolutely
free of all Taxes. There were no previous bequests and
consequently on the basis of Table IV of Part II of the
Second Schedule of the Act, a Tax liability of £15,600
arose. The total of legacy and Tax, therefore, was
£75,600. In the circumstances, the Tax liability was
payable out of the Estate thus giving rise to a further
liability to Tax on the Tax, on the Tax and so on with
the result that the actual cost of the legacy and Tax to
the Estate amounted in all to £91,222.
(The Tax charge in relation to a Tax free legacy of
£100,000 in such an instance would be £90,370).
DISCLAIMER
This is probably an appropriate point to move on to
post death action in the matter of Tax saving since the
example just given begs the question - is there anything
that can be done in such a situation to mitigate the Tax
liability? The brief answer is 'yes' - subject to the co-
operation of the Legatee and/or the other beneficiaries
particularly the Residuary Legatees.
At the risk of repeating some points already made, it
will be noted that in the example in question there are two
separate legacies - (a) the sum of £60,000 and (b) the
"freedom" from Tax. It will be noted that Section 13 of the
Act effectively permits a beneficiary to disclaim a benefit
under a Will or Intestacy and further sub section 3 of
that Section facilitates the substitution of consideration in
money or money's worth received in lieu of the bequest
disclaimed. Consequently, the beneficiary in the case
stated could accept her cash bequest of £60,000 and
agree with the Executor to accept a specified amount in
lieu of the "freedom" from Tax legacy. The amount in
question might be to the order of £20,000/£25,000 on
which Tax would have to be borne by the Legatee thus
leaving the net value of the two legacies under £60,000
which would appear to be inequitable having regard to the
Testator's wishes that the lady should have effectively
£60,000 free of Tax. This difference might be made up in
a number of ways for example by funding the Tax where
possible by surrendering at par Government Stock
standing at a discount.
The main area of achieving Tax saving in a post death
situation as already stated is by the judicious use of the
"disclaimer" provisions of the Act. However, care must
be taken to ensure that the desired results ensue and the
following comments are relevant in any considerations of
this nature:-
1. In disclaiming a benefit, one cannot determine to
whom the benefit subsequently accrues.
2. In effect a legacy or bequest disclaimed falls into the
residue of the Estate.
3. If the Residuary Legatees, or any one of them, dis-
claim benefit, then that property falls to be divided in
accordance with the rules on intestacy.
4. Once accepted a benefit cannot be subsequently dis-
claimed.
5. An interest in the Residuary Estate cannot be partially
disclaimed.
6. One legacy can be disclaimed while a second legacy is
accepted.
7. One of several joint legatees cannot disclaim although
he can release to the others. Only a disclaimer by all
can be effective although the required result can be
achieved by means of a severance of the joint interest
followed by a disclaimer.
8. "Freedom from Tax" is deemed to be a separate
legacy.
These points are very much generalisations and must
not be taken as definitive in the context of C.A.T. legisla-
tion and indeed more particularly having regard to the
Law of Succession.
Further, it is important to draw attention to a
variation between the disclaimer provisions of the C.A.T.
Act and the somewhat similar provisions of Section 14(6)
of the Capital Gains Tax Act which permits exemption
from C.G.T. in the event of bequests being varied
under a Will in accordance with the provisions of a Deed
of Family Arrangement. Such an arrangement is not
possible in the context of Capital Acquisition Tax
legislation.
This is undoubtedly an area of confusion which is
understandable when one looks at the two Sections of the
different Acts referred to which do, of course, relate to
two different Taxes. Nevertheless, the provisions of the
Capital Gains Tax legislation do permit relief from that
Tax in the event of disclaimers being exercised but the
relevance of C.G.T. may currently be of little
consequence except where there is considerable delay in
making distributions.
To illustrate the points referred to in relation to the dis-
claimer provisions, a factual case is as follows:-
'D' bequeathed his Estate, value £360,000 to his
widow absolutely. Consequently the C.A.T. liability
would be £69,500. In that instance, the widow
renounced her interest under the Will and her Legal
Right under the Succession Act on which basis an
Intestacy arose and the widow became absolutely
entitled to two-thirds of the Estate, i.e. £240,000 on
which a C.A.T. liability of £24,500 arose and each of
the deceased's three children became entitled to the
remaining one-third or a sum of £40,000 in each case
which did not attract a C.A.T. liability as it was well
below the exemption threshold. Consequently, a saving
of £45,000 in Tax arose.
In that particular case the widow had the option of
taking her Legal Right which would have given her one-
third of the Estate i.e. £120,000 leaving the remaining
two thirds to devolve on a partial Intestacy. It is suggested
that because of the provisions of Section 115 of the
Succession Act, the widow may be excluded from further
benefit in which would be payable. If, however, the widow
was not excluded, in accordance with the provisions of
the C.A.T. Act, she could disclaim her further benefit on
the Intestacy. However, there is a danger that either the
provisions of Section 115 or a disclaimer could give rise
to "bona vacantia".
In relation to post death action, one can appropriate
assets to avail of certain exemptions and reliefs relative to
the Tax. It may also be possible where certain discretions
as distinct from powers of appropriation are given to
Executors and Trustees to defer distributions with a view
to deferring the Tax without interest charge which
particularly in times of inflation can constitute a real
saving, though care must be taken to ensure that assets do
not become inflated in value thus increasing the Tax
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