Orders under the Inheritance (Provision for Family and Dependants Act) 1975: example of an order under s.10
On 1 March 2013 Joseph made a gift of £500,000 to a trust that he had set up for his mistress. The trustees paid the tax of £35,000 due on the transfer into the trust. Joseph died in March 2015. In proceedings under the I(PFD)A 1975 after his death, the court finds that an order under s.10 is appropriate, and orders the trustees to make the maximum provision of £465,000 as an addition to the deceased’s ‘net estate’ (which alone can be the subject of an Inheritance order).
On a claim by the deceased’s personal representatives, the £35,000 tax is repaid to them and, for the purpose of the tax charge on the death estate, the deceased’s lifetime cumulations are reduced by £500,000. Irrespective of the claim, the deceased’s death estate is increased by £465,000 plus the £35,000 tax repayment claimed by the personal representatives. The revised estate is taxed at death rates except so far as given by the combined effect of the will or intestacy and of the court order to exempt beneficiaries.
If the order had required the trustees to provide only £100,000 then the repayment of tax would be limited to £25,000, being so much of the tax as is attributable to the £100,000, grossed up at lifetime rates, as the top slice of the value transferred. There would be corresponding limitations on the reduction in the lifetime cumulations and in the amounts to be included in the death estate.