January in lockdown was marked with ITV releasing a new drama Finding Alice. The series saw Alice (Keeley Hawes) struggling to juggle all the complications that followed the death of Harry, her long-term partner and father to her daughter Charlotte.
The six-part series left viewers largely split. Some were thrilled by the cliff-hanger ending, eagerly anticipating season 2, whilst others were left frustrated that their burning questions were unanswered.
The series emphasised the importance of both succession planning and asset protection, whilst serving as a useful reminder of the protections available for unmarried couples. We will explore some of the points, but be warned – if you intend to watch Finding Alice there may be a few spoilers below!
The ‘smart’ house and Inheritance Tax
Alice is shocked to learn from her partner’s parents that they are planning to sell the family home, the so-called ‘smart’ house, in order to pay for the substantial inheritance tax (IHT) bill. This news leaves Alice fighting to remain living there – she didn’t know that before his death, Harry had given his parents the ownership of their family home.
Initially, this gift of the property would be classed as a Potentially Exempt Transfer (PET), if made more than seven years before Harry’s death it could have been IHT free. However because Harry remained living in the property the gift is classed as a gift with the reservation of benefit (GROB), and so regardless of how long he survived the gift the property would still be included in the IHT calculation on his death.
Certain reliefs and allowances could be applied to reduce the amount of IHT payable. Each individual has a nil rate band allowance of £325,000 – chargeable to tax at zero%. Although this amount is subject to lifetime gifting within the seven years prior to death. Due to the secretive nature of his affairs, it is likely that Harry could have already used up his nil rate band. In any event, the high value of the property means that there is tax to pay and the deadline is within 6 months of his death.
George and Charlotte
Despite referring to Harry as her ‘husband’ throughout the series, Alice is reminded by her daughter that the couple were never married. Alice finds herself in a challenging position as not only were the pair unmarried, they didn’t have wills.
Without a will and being unmarried, Alice has no protection in regards to Harry’s estate – she will get nothing. Instead, the intestacy rules apply and as Alice has no right to inherit, Harry’s estate will pass to any children he leaves. That said, it seems that Alice and Harry had been living together for over two years, in which case Alice could potentially claim against Harry’s estate for not giving her adequate provision.
The situation becomes even more complicated when Harry’s son, George, comes on the scene. George has rights to inherit from Harry under intestacy. He is asked to ‘waive’ his rights to the estate (known as a ‘disclaimer’). Quite rightly, George takes legal advice on the consequences of this.
Charlotte is under 18. Her inheritance will be held on trust for her until she turns 18. Charlotte seems a sensible child, but another child at 18 might not be financially astute enough to look after an inheritance for their own long-term benefit.
The situation with Harry’s business seems to be that he might have been in difficulty. We don’t know for certain, but there could be creditors who may have a claim to the estate, which would then impact on the inheritance by Harry’s children.
What provisions could Harry have made to protect his family?
It’s clear that Harry would have benefitted from careful tax planning. As Alice says, he has left them with quite a mess!
There can be major tax benefits to being married. If Harry and Alice were married and made wills leaving their estates to the surviving spouse, there would be the spouse exemption – no IHT to pay. Even if Harry didn’t make a Will, Alice would have had some legal inheritance entitlement under the intestacy rules.
A crucial estate planning tool is the creation of a will, especially for unmarried couples. Had Harry made a will he could have protected Charlotte and any other children, whilst also making provisions for Alice during her lifetime.
Alice’s protection could have been through the creation of a Life Interest Trust. Naming Alice as the ‘Life Tenant’ would have afforded her the right to remain living in the property during her lifetime, whilst protecting the property for the children.
Harry’s work in property development is not explained in depth in the series, but there may be a chance that these business assets would benefit from Business Property relief (BPR).
If BPR applied the value of these assets that are subject to tax would be reduced by 50% or 100% and in turn the IHT bill would decrease. There could also the possibility of creating tax planning with a business asset.
A carefully drafted will for Harry could have:
- Avoided the creation of tension between Alice and Harry’s parents
- Protected Alice’s occupation of the home, whilst still providing for his children
- Provided for Charlotte to receive her inheritance at a later, perhaps more appropriate, age
- Reduced the IHT bill down to zero
- Generally created more certainty for his family
Finding Alice is certainly a great example of how things can go wrong without careful succession planning.
If your estate would benefit from careful tax planning, contact Abigail Bartlett or any member of the Private client team for advice, telephone 01227 763939.