An inheritance windfall isn’t always welcome. Ruth Pyatt explains the routes available to reluctant beneficiaries.

For most, the receipt of an inheritance is a welcome event, notwithstanding the loss of a relative. 

For some, however, often because of the tax consequences of receiving a gift, it makes sense for them not to benefit. 

Sometimes a beneficiary’s change of circumstances since a will was written, a falling out between a testator and a beneficiary, or a beneficiary feeling that others are more deserving than them, may mean that that the beneficiary feels it is appropriate that they refuse their gift.

If you are the beneficiary of the estate of a deceased person either under a will, by nomination or survivorship, or under the rules of intestacy, but you don’t want to accept the gift, what options do you have?

Variations and disclaimers

There are two methods of refusing an inheritance: variations and disclaimers. To be effective for tax purposes, both must be in writing and executed within two years of the date of death (although a disclaimer can be effective to refuse a gift, even if it is made by the conduct of the beneficiary, rather than in writing).

Which would be more appropriate under specific circumstances?

Perhaps the starting point is to note when a disclaimer would not be appropriate:

• A disclaimer can’t be used where the inheritance is by the survivorship of a joint tenant. A joint tenant can’t disclaim and a joint tenancy can’t be severed by disclaimer.
• If you have received any benefit from the gift already, you can’t disclaim.
• You generally can’t make a partial disclaimer (you must disclaim the whole inheritance).
• If you want control over who receives the inheritance that you are refusing, a disclaimer is not appropriate. The question of who receives it – whether a legacy, share of the residue of an estate, an interest in intestacy, a life-interest, or an interest in the remainder – is complex, and legal advice should be sought.

In practice, variations are more commonly used than disclaimers, because there is little that can be achieved by a disclaimer that can’t be achieved by a variation.

However, there are occasions when a disclaimer might be more appropriate than a variation:

• The most obvious is where the disclaimer results in an increase in the amount of inheritance tax payable. Unlike a variation, in the circumstances in which additional tax is payable, the personal representatives do not need to be a party to the disclaimer. In the event that there are no funds to pay the additional tax, the personal representatives can’t therefore veto a disclaimer, whereas they might well refuse to be a party to a variation.
• The other two reasons are more complex, with the first relating to settled property. Property that the deceased is treated as owning by virtue of an interest in possession in a settlement must be disclaimed (under s93 of the Inheritance Act 1984), as it is not capable of being varied under s144.
• Second, where a variation would make a person a ‘settlor’ for income tax purposes, a disclaimer would not.This is because the effect of a disclaimer is that the gift is treated as never having been made to the original beneficiary, whereas under variations, any retrospective effect is only in relation to inheritance tax and capital gains tax.

About the author

Ruth Pyatt is a senior associate in the wills and advisory team at Birketts, and is a director of Solicitors for the Elderly. 

Publication date: 9 July 2018