Certain groups of people (including unofficially adopted individuals and stepchildren) are missing out on the same inheritance rights as biological children, according to a recent feature article in the Metro.

The feature points out that in 2021, there is no such thing as a ‘typical’ family. It highlights one case where a woman in North London was raised by her biological uncle after her mum and dad decided they didn’t want to look after her anymore. As she had been brought up by her uncle from such a young age, Annie* felt that Jack* was her dad. Her mother had suffered from post-natal depression after Annie’s birth, and it was considered advisable that all contact ceased. The family became estranged sometime later.

She lived with her uncle until she was in her 20s—she is now in her early 60s. He brought her up as a single dad and never married. They have always been very close, seeing each other several times a week and taking a holiday together every year. In his later years, she has cared for him as he now has severe health needs.

Never formally adopted

However, because of the way the inheritance laws work and because she was never formally adopted, Annie will lose out when he dies, despite Jack naming her and her family in his Will. This is because of the Residence Nil Rate Band, which is the amount that can be passed on tax-free against the value of the family home.

Niamh Minihane, an inheritance specialist at the law firm Gardner Leader, told the Metro that with Residence Nil Rate Band, every individual has an allowance for inheritance tax. Currently, the value is £325,000. However, if you have a property or if you’ve owned a property, and you leave your estate to your direct descendants in your will, you can claim an additional threshold before inheritance tax of £175,000, bringing the total allowance to half a million pounds.

Although Residence Nil Rate Band includes stepchildren or foster children, it doesn’t include people who do not have children but want to leave it to their nieces or nephews or others they view as children.

More inheritance tax

As Annie was not formally adopted and this is something that is not possible to do once someone is older than 18, she will miss out, and need to pay more tax when inheriting Jack’s home than a biological child would do. She and Jack feel this is unfair, and the family home will need to be sold when Jack dies.

Annie told the Metro she was sure there must be many other people in the same position.

From the other side, parents too are worried about this issue. Andrew* from St Albans met his former partner and raised her young son as his own. They later married and had a daughter together, but he never formally adopted the son because the boy still had some contact with his natural father, and it hadn’t seemed important at the time.

The son and Andrew’s daughter are very close, and Andrew plans to divide his estate between them both, but his son will pay a much larger amount of tax on his share of the inheritance than Andrew’s daughter, which Andrew feels is very unfair.

He added that he thought it was “repugnant” that he found himself trying to look for loopholes in the tax laws just so that each of his children could receive their rightful share.

*not their real names

Finders International have a range of Legal Support Services to assist solicitors and other legal professionals including our Missing Will Service, Unclaimed Assets and Overseas Bankruptcy Searches.  To find out more, please visit our website.  Alternatively, you can email [email protected] or telephone +44(0) 20 7490 4935.