Clawing back assets: challenging pre-death transactions in Inheritance Act claims

We regularly advise clients who feel they have not been properly provided for under a loved one’s will. The Inheritance (Provision for Family and Dependants) Act 1975 allows the court to vary the distribution of a deceased person's estate to ensure ‘reasonable financial provision’ for certain family members and dependants in certain circumstances.

Problems can arise where the deceased deliberately reduced their estate before death - through gifts, transfers, or arrangements designed to limit what is available for such a claim. This can leave deserving applicants with little to pursue. However, the law provides strong anti‑avoidance tools. Courts can restore assets to the deceased’s ‘notional’ estate using powers under the Inheritance (Provision for Family and Dependants) Act 1975 and the Insolvency Act 1986, helping to ensure that claims are dealt with fairly.

In this article we explore these powers, highlighting their different requirements and strategic uses and touching on the important High Court decision in the B v IB case, which clarified the potent relationship between these two legal avenues.

Issues can arise where the deceased reduced their estate before death through gifts or transfers, leaving little for a claim. However, the law provides tools to address this. Courts can bring assets back into a ‘notional’ estate under the Inheritance (Provision for Family and Dependants) Act 1975 and the Insolvency Act 1986 to help ensure a fair outcome.

The Inheritance (Provision for Family and Dependants) Act 1975 internal toolkit: sections 9 to 11

The Inheritance (Provision for Family and Dependants) Act 1975 contains its own set of anti-avoidance provisions, providing a direct, 'in-house' mechanism to challenge certain pre-death transactions. The most commonly used is section 10.

A powerful alternative: section 423 of the Insolvency Act 1986

An overlooked alternative to the anti-avoidance provisions in the Inheritance (Provision for Family and Dependants) Act 1975 is found in section 423 of the Insolvency Act 1986, which deals with "transactions defrauding creditors". 

At first glance, this might seem an odd fit. The Insolvency Act 1986 is about insolvency, and an Inheritance (Provision for Family and Dependants) Act 1975 claimant is not a typical creditor. However, the courts in the B v IB case have confirmed that a person with a potential Inheritance (Provision for Family and Dependants) Act 1975 claim is a 'victim' for the purposes of section 423, and that the deceased does not need to have been insolvent for the section to apply. 

The 'purpose' test is subtly but significantly different from the 'intention' test under section 10 of the Inheritance (Provision for Family and Dependants) Act 1975. It's generally considered a wider and potentially easier test to satisfy. The court can infer the purpose from the circumstances, and it need not be the sole or dominant purpose of the transaction. 

The decision in the B v IB case: a new landscape

The case of B v IB provided crucial clarification on the interplay between the Inheritance (Provision for Family and Dependants) Act 1975 and section 423. The case involved a claim by a widow against her late husband’s estate. 

During the marriage, the husband had transferred approximately £3m to his son from a previous relationship. When the husband died in July 2012 during divorce proceedings, his remaining estate was worth only £2m and his 2010 will left everything on trust for his children, providing nothing for his widow. Faced with the obstacle that several of the transfers pre-dated the six-year window under section 10 of the Inheritance (Provision for Family and Dependants) Act 1975, the widow sought to deploy section 423 of the Insolvency Act 1986 to bring the transferred sums back within reach of her claim. 

The son argued that section 10 of the Inheritance (Provision for Family and Dependants) Act 1975 provided the sole and appropriate statutory mechanism for challenging the transfers, such that there was no scope for the widow to rely additionally on section 423 of the Insolvency Act 1986, and that the existence of the section 10 remedy expressly precluded recourse to it. He further submitted that section 423 was not a freestanding remedy, that it applied only in cases of formal insolvency, and that in any event there was no longer any live cause of action following the husband's death.

The court confirmed several vital points for claimants:

• Section 423 is a "freestanding remedy": it's not merely a tool for insolvency practitioners. It's an additional, separate remedy that can be used by a 'victim' of a transaction, including a potential  Inheritance (Provision for Family and Dependants) Act 1975 claimant.
• No requirement for insolvency: the deceased does not need to have been insolvent at the time of the transaction or at death.
• No six-year time limit: unlike section 10 of the Inheritance (Provision for Family and Dependants) Act 1975, section 423 is not subject to a fixed six-year limitation period running from the date of death. Section 423 is a claim on a specialty, attracting a twelve-year limitation period under section 8(1) of the Limitation Act 1980. 
  Crucially, no cause of action arises until the claimant becomes a 'victim' - that is, a person who is actually and adversely affected by the transaction. Time therefore runs not from the date of the transfer itself, but from the date upon which the claimant first suffers actual detriment, meaning that even historic transactions may remain open to challenge long after they were made.
• Wider remedies: the remedies under section 423 are broader. While the Inheritance (Provision for Family and Dependants) Act 1975 generally allows the court to order the recipient to pay a sum of money, section 423 allows the court to make an order "restoring the position to what it would have been if the transaction had not been entered into". This could involve ordering the physical return of an asset, which can be a much more powerful remedy.

Conclusion

For anyone contemplating a claim under the Inheritance (Provision for Family and Dependants) Act 1975, the discovery that the deceased has given away significant assets can be a devastating blow. However, it's by no means the end of the road. The law provides powerful tools to challenge such transactions and ensure that a just and reasonable outcome can be achieved.

The provisions within the Inheritance (Provision for Family and Dependants) Act 1975 itself, particularly sections 9, 10 and 11, provide a dedicated toolkit for clawing back assets disposed of with the intention of defeating a claim. The decision in B v IB has, however, cemented the role of section 423 of the Insolvency Act 1986 as a vital, and often more flexible, alternative. Its wider purpose test, lack of a fixed time limit, and broader remedies make it an essential consideration in any case where the deceased has sought to structure their affairs to avoid their responsibilities to their family and dependants.

Navigating these complex provisions requires specialist legal advice. If you find yourself in this difficult position, it's crucial to act quickly and seek legal expertise in this area to explore all the options available to you. For further information or advice, please contact our disputed wills team.