The Gazette 1982

GAZETTE

JULY/AUGUS

1982

mere 70 acres (without stock or machinery) would

have resulted in a liability to Inheritance Tax. The

combination of reduced land values and increased

relief for agricultural value have dramatically

changed the position. The problem for a testator,

however, is to try to predict the values at date of

death; it is because of this difficulty and risk that a

transfer to part (this can be either a transfer of an

undivided share, as a tenant in common, or an

absolute transfer of a specified area) can make very

good sense as a hedge against any future inflation.

This, of course, raises other issues, such as

partnership with the Successor, stamp duties on the

transfer, the maturity of the Successor and the needs

of other dependants. While these are matters which

should be faced discussed and considered, the

completion of a suitable will should not be deferred

because of any uncertainty about future values, or

while

inter vivos

arrangements are being considered.

Rather than run the risk of a death intestate, the

farmer should certainly consider making even a

"holding" will, in comparatively simple and straigh-

forward terms, in order, at least, to take maximum

advantage of whatever exempt thresholds or lower

rates of tax are available under the C. A.T. Act, which

could be followed by whatever combination of

dispositions,

inter vivos

and by will might be best

suited to the circumstances.

The objectives mentioned above can be acheived in

a number of ways. In the case of an elderly testator,

he can with his wife's concurrence (by release of her

legal right) devise the farm direct to the Successor,

subject to rights of residence, maintenance and

support for his wife and subject to any appropriate

charges in favour of other children.

young testator,

on the other hand, would be well advised to make a

substantial bequest in favour of his wife and create a

discretionary trust for the benefit of any children or,

perhaps, for the benefit of both children

and

wife; a

simple example of this would be to leave an

undivided moiety of his estate absolutely to his wite

and to settle the other undivided moiety upon

discretionary trusts for the children, with power of

appointment to his wife or trustees and with the

ultimate intention that the farm would pass to the

Successor through the joint operation of the devise to

his wife and the exercise of the power ot

appointment, respectively. In a compromise

situation, the testator might simply leave his property

equally to his wife and the Successor with, or subject

to, suitable provision for any dependant children.

Other possibilities which should be kept in mind to

avoid, reduce, or make provision for liability tor

Inheritance Tax include:—

1. the making of small gifts, not exceeding £500 per

annum;

2. making a gift, rather than an Inheritance,

because Gift Tax is charged at only 75% of

Inheritance Tax, unless the donor dies within

two years of making the gift;

3. the surrender of Government Stock to pay tax;

this can be very useful for a person who holds

stocks and shares — the transfer, while alive, of

some of his investments into appropriate

Government Stock can provide very substantial

savings;

4. insurance on the testator's life by a spouse or

other beneficiary — but remember that the

premiums must be paid from the income of the

spouse or other beneficiary or, perhaps, with the

assistance of small annual gifts;

5. a bequest or gift of up to £10,000 to the spouse of

any beneficiary;

6. when dealing with nephews or nieces, it may be

possible to arrange that the nephew or niece will

become "a favourite nephew or niece", having

worked wholetime for the testator for a period of

five years prior to taking the gift or inheritance;

7. when benefits are given to a grandchild, it should

be remembered that, where the grandchild is the

child of a deceased child and is also a minor, he

has the same threshold as a child of the testator;

in all other circumstances, a grandchild is

entitled to an exempt threshold of £30,000.

It will be seen that the legislation offers — indeed,

is clearly intended to offer — considerable scope for

the mitigation of the burden of taxation upon the

passing of property from one generation to the next.

Although this article has not dealt extensively with

the uses of the discretionary trust, such trusts have an

obvious social importance in cases where a testator

leaves infant children or a child suffering from some

disability. For such trust to be attacked by

government and revenue alike, as being mere vehicles

of tax evasion, is to miss a fundamental social point;

any such attack must be resisted strenuously. But,

discretionary trusts apart, the simple fact remains

that everybody having any property whatever to pass

on to the next generation, whether of the farming

community or not, should make a will. •

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