Following on from our article in May (Issue 39) on the effect on an estate of the Commorientes rule we now further explore the IHT position where it cannot be determined which of a couple have died first.
In general law the devolution of their estates is governed by s.184 Law of Property Act 1925 (LPA) in that the younger is presumed to have survived the elder. The position for IHT purposes however is slightly different.
S.4(2) of the Inheritance Tax Act 1984 (IHTA) applies in the same circumstances as s.184 LPA (where two or more people die simultaneously and the order of their deaths is uncertain) but overrides the presumption that the youngest survived the elder solely for the purposes of IHT. S.4(2) does not affect the devolution of the estate and does not apply to deaths where there is evidence of who died first, even if there was just a very short interval between the deaths. The effect of the section in relation to the individual deaths is considered separately. In simple terms, where property devolves from the estate of an elder person to the estate of a younger under s.184 LPA the effect of s.4(2) IHTA is that the property is not taxable on the death of the younger.
The following example is available on HMRC website:
The husband (H) by his Will leaves his estate to his younger wife (W). She leaves her estate by Will to H or, if he does not survive her, to their children. H and W are killed in an accident. The order of their deaths cannot be established so devolution is governed by s.184 LPA. H, being the elder, is deemed to have died first. His assets therefore pass into W’s estate. W’s estate passes to their children.
The position for IHT is that on H’s death the estate is exempt from tax under s.18 (the spousal exemption). On W’s death s.4(2) IHTA operates to exclude H’s death estate from W’s death estate for the purposes of the IHT charge under s.4(1) on her death. Since H and W are treated as having died at the same instant only W’s estate is taxed. The result is that H’s estate escapes IHT on both deaths.
In order for this to be a benefit to a couple any condition as to survivorship in the Will of the elder person must be excluded so that his or her estate will devolve under s.184 LPA upon the younger’s estate and will be exempt from IHT. The above example would not apply if H had died intestate. His estate would have devolved directly on the children so H’s estate would not be subject to the spousal exemption.
The treatment of simultaneous deaths in Scotland and Northern Ireland is also different and no spouse exemption under s.18 IHTA is available in these circumstances.
