Why did Sally Challen challenge the Forfeiture Rule if she didn’t want the money?

It has been widely reported in the media that Sally Challen has won the right to inherit the £1m estate of her husband despite being convicted of his murder, subsequently overturned when the Crown accepted her guilty plea to his manslaughter. I will not go into the details of the case here save to say that in accepting her manslaughter plea, it was also noted that the deceased had ‘coercive control’ over his wife which is now recognised as a criminal offence (although it was not recognised as such at the time of the killing).

The Forfeiture Rule means the rule of public policy which in certain circumstances stops a person from acquiring a benefit from someone they have unlawfully killed. So in Mrs Challen’s case, she was unable to benefit from her husband’s estate. However, the Forfeiture Act 1982 (1982 Act), gives the court power to modify or exclude the effect of the rule ‘having regard to the conduct of the offender (in this case Mrs Challen) and of the deceased…’

The Judge in this case, in deciding whether to exercise his judicial discretion under the 1982 Act to dis-apply the effect of the forfeiture rule, said that the facts were ’extraordinary, tragic and one would hope, rare’. He said that ‘the deceased undoubtedly contributed significantly to the circumstances in which he died’ and he agreed that the forfeiture rule should be dis-applied in the particular circumstances of this case.

According to the case reports, the effect of this ruling is that the deceased’s estate can now pass to Mrs Challen rather than her sons (which happened because of forfeiture). However, although they were named as the defendants in this case, her sons did not challenge it and Mrs Challen has disclaimed any interest in actually recovering the inheritance from her sons. So why did she do it?

It seems that the reason is to recover the Inheritance tax (IHT) that was paid when the estate passed to her sons rather than herself.

Transfers between spouses are exempt for IHT purposes, but although there may have been some available exemptions, a £1m estate would have suffered a minimum tax liability of £270,000 when it all passed to the sons.

It is reported that the deceased had not made a will, meaning that he would have died intestate. It is also reported that the family home was a major asset in the estate and was jointly owned with his wife. So by dis-applying the forfeiture rule, Mrs Challen inherits his share of the house by survivorship (assuming that the home was owned by them as beneficial joint tenants rather than as tenants in common) and under the intestacy rules, she inherits all of his personal effects, the next £250,000 and half of the balance as a life interest (based on the intestacy rules as they then were), with the other half passing to the sons. It is likely that if the house was the major part of the £1m estate, that the part now passing to the sons under the intestacy rules will be less than the available IHT exemption, meaning that no IHT is due – and can now be claimed back from HMRC.

However, if Mrs Challen is not actually claiming the money back from her sons, has she made a lifetime gift to them (a Potentially Exempt Transfer) and if so, when does the 7 years start running? Perhaps a question for another blog!