Private client section

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Issue 21 - September 2007

Contents

Cases
Features
Articles

News

Events

Discounts (how to book and claim discounts)

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Cases

1. Harrison v George

Citation: [2007] All ER (D) 117 (August)
Court: Chancery Division
Judge: Warren J
Hearing date: 20 August 2007
Summary: deed – construction

The testator and the defendant, his wife, purchased a property in 1972. Following the testator's death in January 2003, he left a will providing that the defendant inherit his estate absolutely. The claimant, a solicitor who had been contacted by the defendant's son, drew up a deed of variation to take advantage of section 142 of the Inheritance Tax Act 1984 and section 62 of the Taxation of Chargeable Gains Act 1992 to minimise the amount of tax paid by the defendant. The deed was effected, despite the fact that no inheritance tax would have been payable. The deed purported to deem that immediately prior to the execution of the will the testator and defendant's joint tenancy in equity had been severed, and the testator and defendant had become beneficial tenants in common with the interest in the property divided nine-tenths, one-tenth respectively. Issues concerning the validity and effect of the deed of variation arose.

The defendant contended that she had failed to appreciate the effect of the deed and had never intended to divest herself of her half-share in the property. It was argued on her behalf that the effect of the deed was to simply sever the joint tenancy in equity leaving her with an equal share of the property.

The court ruled:

On the true construction of the deed, it was deemed that, immediately prior to the execution of the testator's will, the joint tenancy in equity in respect of the property in issue was severed. At the material time, the testator and the defendant were beneficial tenants in common with an equal share in the property.

Any contention that the beneficial interest in the property was divided nine-tenths to one-tenth was based on an erroneous understanding of the effect of the deed.
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2. Re G

Citation: [2007] All ER (D) 507 (July)
Court: Chancery Division
Judge: Morgan J
Hearing date: 31 July 2007
Summary: mental health – patient's property – execution of will

Mr and Mrs G, the patients, were born in 1929 and 1928, respectively. They had two children, N and C. Until 1997, Mr G was a director of a company in which he owned the majority of the shares. Mrs G and N, who became a managing director of the company in 1994, also owned shares therein. The net asset value of the company was estimated to be approximately £2.1 million. The patients lived in their own home until 2003, when they were hospitalised, subsequently residing in separate nursing homes. In 2005, a receiver was appointed on their behalf, who sold their house, resulting in approximately £1,100,000 being paid into the court funds office for each patient. C applied for statutory wills to be made for the patients pursuant to section 96(1)(e) of the Mental Health Act 1983. Under the proposed statutory wills, following the patients' deaths, N would receive their shares in the company, and C would receive the remaining proceeds of sale of the house, in accordance with the earlier testamentary intentions of the patients. The receiver and N made further applications for the court to authorise lifetime gifts in favour of C and N, respectively, pursuant to section 96(1)(d) of the Act. N requested a lifetime gift of, inter alia, the patients' company shares, and C requested a capital sum to enable her to buy a flat in West London, as well as maintenance payments of £3,300 per month. It was estimated that Mr G's residential care, over his future life expectancy of 10 years, would cost some £500,000, and that Mrs G's care, over her future life expectancy of 12 years, would cost some £650,000.

It was conceded that the making of statutory wills was appropriate, as the patients were incapable by reason of mental disorder of making valid wills for themselves. It fell to be determined whether the gifts made pursuant to those wills on the patients' deaths should be accelerated as lifetime gifts.

The court ruled:

(1) In the context of lifetime gifts, section 95(2) of the Act made it clear that the court had to have regard, first of all, to the requirements of the patients. The sums available for possible lifetime gifts could only come out of any surplus after the requirements of the patients had been properly provided for. In considering the requirements of the patients, regard had to be had to their life expectancy and future increases in the expenditure which might be necessary.

In the instant case, the assets and income of the patients were surplus to their expected requirements. There was, therefore, scope for considering possible lifetime gifts to N and C. Such gifts would have quite different impacts on the financial position of the patients.

(2) If the patients had remained capable of administering their own affairs, it seemed likely that they would have wished their shares to pass to N on their death but not before. However, in the lucid interval presumed to exist for instant purposes, they would have realised that they would shortly relapse into a medical condition, having no control over their affairs, and that their needs as to residential care would not be adversely affected by a transfer of their shares to N. They would see the good sense of N having control of the company. In that lucid interval, the patients would wish to make a lifetime transfer of their shares to N. They would also see the good estate planning reasons for a lifetime transfer of that kind.

The patients' shares in the company would be transferred to N. Re D (J) [1982] 2 All ER 37, Re C (a patient) [1991] 3 All ER 866 and Re S (Gifts by Mental Patient) [1997] 2 FCR 320 applied.

(3) If C received the outright gifts and maintenance sought, there would be a shortfall in terms of income as compared with expenditure on the part of the patients. They would want to have the protection of a cushion against expenditure on their behalf. Furthermore, in applying section 95(2) and having regard to the requirements of the patients, the court would wish to ensure such a cushion existed. The appropriate way to provide such, and for the court to have the necessary confidence that the gifts which it authorised would be gifts which the patients themselves would have made, was to reduce the amount of maintenance to be paid to C and to provide that the flat was not to be acquired outright by C, but rather in the names of the patients, to be held by them on trust as to one half for C and one quarter each for them.

The receiver would be authorised, inter alia, to purchase the flat in the names of the patients and to pay £2,800 per month until further order.

Re D (J) [1982] 2 All ER 37, Re C (a patient) [1991] 3 All ER 866 and Re S (Gifts by Mental Patient) [1997] 2 FCR 320 applied.
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3. Wills v Gibbs and others

Citation: [2007] All ER (D) 509 (July)
Court: Chancery Division
Judge: Rimer J
Hearing date: 31 July 2007
Summary: deed – rectification – deed of variation – inheritance tax

Section 142 of the Inheritance Tax Act 1984 provides, so far as is material: “(1) Where within the period of two years after a person's death (a) any of the dispositions (whether effected by will, under the law relating to intestacy or otherwise) of the property comprised in his estate immediately before his death are varied, or (b) the benefit conferred by any of those dispositions is disclaimed, by an instrument in writing made by the persons or any of the persons who benefit or would benefit under the dispositions, this Act shall apply as if the variation had been effected by the deceased or, as the case may be, the disclaimed benefit had never been conferred … (2) Subsection (1) above shall not apply to a variation unless the instrument contains a statement, made by all the relevant persons, to the effect that they intend the subsection to apply to the variation”.

Section 62 of the Taxation of Chargeable Gains Act 1992 provides, so far as is material: “(6) Subject to subsections (7) and (8) below, where within the period of two years after a person's death any of the dispositions (whether effected by will, under the law relating to intestacy or otherwise) of the property of which he was competent to dispose are varied, or the benefit conferred by any of those dispositions is disclaimed, by an instrument in writing made by the persons or any of the persons who benefit or would benefit under the dispositions (a) the variation or disclaimer shall not constitute a disposal for the purposes of this Act, and (b) this section shall apply as if the variation had been effected by the deceased or, as the case may be, the disclaimed benefit had never been conferred … (7) Subsection (6) above does not apply to a variation unless the instrument contains a statement by the persons making the instrument to the effect that they intend the subsection to apply to the variation”.

The testator died in January 2005, leaving a will dated 25 January 2002. The will appointed the first and second defendants as executors of the will. The second defendant was the testator's solicitor and a partner in the firm of BS. The will and its first codicil left most of the testator's interest in a farm and in the farming business, carried on there to the testator's cousin, the third defendant. The third defendant subsequently wished to redirect some of his entitlement under the will and its first codicil to his son, the claimant, by way of a variation of the testamentary dispositions falling within the Inheritance Tax Act 1984, section 142(1). His intention was that the gifts should be treated for inheritance tax purposes as a direct disposition by the will, which would be exempt from inheritance tax in the event of his death. The second defendant and third defendant met to discuss the proposed variation. The third defendant was concerned that the deeds of variation regime would be abolished in the budget fixed for March 2005. The engrossed deed of variation was then prepared by BS. Section 142(2) of the 1984 Act provided that section 142(1) should not apply to a variation unless the instrument contained a statement, made by all the relevant persons, to the effect that they intended the sub-section to apply to the variation. There was a similar requirement in respect of capital gains tax in section 62(7) of the Taxation of Chargeable Gains Act 1992. The engrossed deed as prepared by the third defendant accidentally omitted that necessary statement of intention. The second defendant subsequently noticed the omission of that statement in the deed of variation while in the course of preparing a further deed of variation for the third defendant. The effect of that omission in respect of the 1984 Act was that, if the third defendant died within seven years of making the gift to the claimant, that disposition would take effect as a lifetime transfer, carrying with it a liability for inheritance tax the third defendant was seeking to avoid. The effect of that omission in respect of the 1992 Act was that the disposition to the claimant would give rise to a liability to capital gains tax from the date of the testator's death. Consequently, the claimant applied for rectification of the deed of variation to include the statement prescribed by section  142(2) of the 1984 Act and section 62(7) of the 1992 Act. The application was not opposed by the defendants.

The application would be allowed.

(1) Rectification was a discretionary equitable remedy. Its function was to enable parties to a transaction to correct mistakes in the way their transaction had been recorded. It was no part of its function to enable parties to change the substance of the transaction into which they have entered. The remedy of rectification was also available to achieve the correction of a voluntary settlement, so as to enable any mistakes in the settlement as executed to accord with the settlor's true intention when he executed it.

In the instant case, there was no evidence that the third defendant had been aware of the formalities pursuant to section 142(2) of the 1984 Act and section 62(7) of the 1992 Act that were required to be satisfied. However, he had known that he intended his disposition to the claimant to avoid inheritance tax and that he wanted to do so before the law changed against him, and had employed the second defendant to ensure that the disposition had that effect. In those circumstances, it had clearly been the third defendant's intention that the second defendant would prepare the deed of variation to give his disposition the relevant tax advantages. Accordingly, the deed would be varied in the form sought to give effect to the third defendant's intention.

(2) The court would make an order for the rectification of a document if satisfied that it did not give effect to the true agreement or arrangement between the parties, or to the true intention of a grantor or covenantor and if satisfied that there was an issue, capable of being contested, between the parties or between a covenantor or a grantor and the person he intended to benefit, it being irrelevant that rectification of the document was sought or consented to by them all, and that rectification was desired because it had beneficial fiscal consequences. On the other hand, the court would not order rectification of a document as between the parties or as between a grantor or covenantor and an intended beneficiary, if their rights would be unaffected and if the only effect of the order would be to secure a fiscal benefit.

In the instant case, there were issues between the parties so that the rectification sought was not just for procuring beneficial fiscal consequences. Those issues were: (i) in the absence of rectification the deed of variation was a lifetime potentially exempt transfer, which would probably be subject to significant or possibly substantial amounts of inheritance tax, if the third defendant died within seven years of making it, (ii) the extent to which under the unrectified deed the claimant could insist on all the property subject to the deed of variation being transferred to him immediately without waiting for the end of the seven-year period from the date of that deed. All the assets subject to the deed of variation were still held by the first and second defendants and they needed to retain security against inheritance tax in the event of the third defendant dying within seven years of it if there was no rectification, but had no need for such security if there was rectification, and (iii) the contingent issue between the claimant and the third defendant as to whether the claimant or the third defendant's representatives should bear the inheritance tax in the event of the third defendant's death within seven years of the deed of variation.

Racal Group Services v Ashmore [1995] STC 1151 and dicta of Rimer J in Allnutt and another v Wilding and others [2006] All ER (D) 375 (July) at para [16] applied.
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4. Holman v Howes

Citation: [2007] All ER (D) 449 (July)
Court: Court of Appeal, Civil Division
Judge: Dyson, Jacob and Lloyd LJJ
Hearing date: 27 July 2007
Summary: trust and trustee – constructive trust

The parties were divorced in 1978. In 1979, they purchased a property in an endeavour, by the former husband, the defendant, to resuscitate the relationship. The parties contributed substantial sums towards the purchase of the property. Although the contract for the purchase of the property was in the sole name of the former wife, the claimant, on completion the property was transferred into the defendant's sole name. In 1980, the defendant left the property. Since that time the property had been exclusively occupied by the claimant and her daughter. After her daughter left home, the claimant was in sole occupation of the property. In August 2000, the claimant issued proceedings, seeking a declaration that she was the sole beneficial owner of the property. She claimed that she had been induced into transferring the property into the defendant's name by an assurance from the defendant that he would never make any claim to it, and that, in effect, the property would belong solely to her beneficially.

The defendant denied any such assurance. He contended that the property had been purchased as an equal joint venture between himself and the claimant and that, accordingly, it was held on trust for himself and the claimant in equal shares. On that basis he counterclaimed for an order pursuant to section 14 of the Trusts of Land and Appointment of Trustees Act 1996 for the immediate sale of the property to enable his half share in the property to be realised. The judge found that the property had been bought as an equal joint venture, and that it was held on trust by the defendant for himself and the claimant in equal shares. However, he also found that the defendant had assured the claimant that she would remain in occupation for as long as she wished. He found that the claimant had been induced by that assurance into, inter alia, transferring the legal estate into the defendant's name. On that basis, he refused to make an order for sale “for the time being”. The claimant appealed.

She submitted that the judge, in finding that she and the defendant each had a half beneficial share in the property, had failed to have regard to her conduct after 1980 when the parties had separated, including, inter alia, that she had assumed all the obligations of ownership. She also submitted that the judge had failed to consider her case on the basis of proprietary estoppel. She claimed that she had relied to her detriment on the defendant's assurance, and that therefore the defendant should be estopped from obtaining an order for sale against her consent, under section 14 of the 1997 Act.

The appeal would be allowed.

The matters relied on by the claimant did not throw light on their shared intention in 1979. All the matters were post-acquisition, and none were indicative of any agreement between the parties, whether at the time or later. It followed that the first ground of appeal was not well made out.

Oxley v Hiscock [2004] 3 All ER 703 considered. Stack v Dowden [2007] 2 All ER 929 applied.

(2) The equity arising in the very unusual facts of the instant case could only be satisfied by giving effect to the representation found to have been made by the judge. The defendant had sought reconciliation, but it had certainly been foreseeable that the attempt would not work. The logic of the judge's finding of an assurance led inexorably to the recognition that the claimant should be entitled to be in possession of the property for as long as she wished.

Jennings v Rice [2003] 1 FCR 501 applied. Decision of Alan Steinfeld QC [2005] 3 FCR 474 varied.
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5. Lansforsakringar Bank AB v Wood & others

Citation: [2007] All ER (D) 254 (July)
Court: Queen's Bench Division
Judge: Patten J
Hearing date: 17 July 2007
Summary: judgment debt – deceased's estate – defendant obtaining proportion of deceased's estate – claimant's obtaining third party debt order – claimant's applying for third party debt order to be made final – master dismissing application – whether master erred

Part 72.2 of the Civil Procedure Rules 1998, Statutory Instrument 1998/3132, so far as material, provides: “(1) Upon the application of a judgment creditor, the court may make an order (a final third party debt order) requiring a third party to pay to the judgment creditor (a) the amount of any debt due or accruing due to the judgment debtor from the third party; or (b) so much of that debt as is sufficient to satisfy the judgment debt and the judgment creditor's costs of the application … “.

The defendant borrowed a sum of money from a predecessor in title of the claimant bank in Sweden. As security for that loan his parents provided a guarantee. The defendant never repaid any part of the loan and the claimant obtained judgment in Sweden against the defendant, arising out of non-payment. The claimant registered the Swedish judgment in the English courts. Thereafter, the defendant's mother died and the third parties, who were the executors under the will, notified the defendant that he had not been made a beneficiary under the will. He subsequently brought proceedings in England against the executors of the estate under the Inheritance (provision for Family and Dependants) Act 1975. The matter came before the judge, who ordered that the defendant should be paid a proportion of the residuary estate to be paid out of the net assets. The claimant applied for an interim third party order in respect of the judgment debt. The matter came before the master who made an interim third party order, and pursuant to that order, made a freezing order in respect of the amount. In that context, the claimant applied to the master for a final third party debt order, pursuant to CPR 72.2(1). It was common ground that the third parties consented to the order being made final. However, the master dismissed the application to render the order final, on the basis that there was no jurisdiction to make a third party debt order against the defendant in respect of the amount ordered to be paid to the defendant under the 1975 Act. The claimant appealed against that judgment.

He submitted, inter alia, that the defendant's share of the residual estate had amounted to a debt due or accruing due for the purposes of the third party debt order, and on that basis, the judge should have ordered that the interim order be made final.

The appeal would be dismissed.

In the instant case, it had been very clear that the effect of the order made under the 1975 Act simply reordered the provisions of the deceased's will, and had not made anything equivalent to a payment of money which could be qualified as a debt due or accruing due to the claimant from the third party. In all the circumstances, the master had been right to dismiss the application to make final the interim third party debt order.
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Features

1. Law Society Council update

The last Council meeting in the Law Society’s annual cycle of meetings and events was held on 18 July, closely followed by the Law Society Annual General Meeting (AGM) on 19 July. Both Mr Peter Williamson, Chair of the Solicitors Regulatory Authority (SRA) and Professor Shamit Saggar, Chair of the Legal Complaints Service Board, presented update reports to the Council.

Consultation responses to the SRA paper on the future structure of the Legal Practice Course (LPC) closed in May. The Council were advised that further revisions have been made to the LPC written standards. Any changes to the role of the elective subjects, in particular, the possibility that, in the future, elective subjects could be “disengaged “ from the compulsory part of the LPC, may be important for Probate Section members, as it might impact the number of students who decide to take a tax/private client elective.

The Council approved the recommendation that the full practising certificate for 2007/08 should be £950, and the SRA recommendation that the full contribution for the 2007/09 compensation fund should be £300 – a reduction from the 2006/07 rate, which was £400.

The main debate at the Council meeting focused on the role and remit of the Law Society boards and how they will interact with the local law societies, specialist groups, Law Society committees and, of course, Sections. For the Probate Section, the biggest challenge is to continue to respond to its members’ concerns and needs.

In August, I attended a “horizon scanning” meeting in Chancery Lane, which was attended by a wide range of representatives from local law societies, groups, Law Society committees and Sections, as well as Council members. There seemed to be general consensus that to survive the inevitable competition from “Tesco law” solicitors would have to demonstrate and be known to have special expertise for which the public would be prepared to pay a premium. It may also prove challenging for firms to recruit and retain solicitors if the alternative legal service providers offer attractive terms and conditions of employment. I am afraid I can offer no instant solutions, but these forums are a useful means for the Law Society staff to gauge how the profession anticipates facing the possible challenges ahead.

The next Council meeting is on 3 October. If anyone has any issues that they wish me to raise, please email probatesection@lawsociety.org.uk.

Helen Clarke
Law Society Council member
Chair, Wills and Equity Committee
Member, Probate Section Executive Committee
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2. Don’t leave anything to chance

The Law Society says that anyone with assets and family or friends should make a will. Helen Clarke of the Society's Probate Section, points out that it is especially important if you are not married to your partner because the law does not accord partners the same automatic rights of inheritance as spouses. It is also vital if you have children, as you can nominate guardians to care for them.

Ms Clarke and Paul Elmhirst, author of the Which? Essential Guide to Wills and Probate, both advise people to use a solicitor to draw up a will rather than use one of the cut-price will writing services advertised online or the will packs sold by high street stationers. Ms Clarke says that a small slip while completing online will instructions or a will pack kit could make the will inappropriate or invalid. "Besides, filling in a form is not the same as having a conversation with a professional. Most of us have complicated lives and need expert help," she said.

To save time and money, Mr Elmhirst says that it is important to go to the solicitor's office prepared with a list of assets and debts and their approximate values. Include your property, investments, savings, insurance policies and pension. Gillian Coverley of Irwin Mitchell says to also bring details of individual bequests. Simply telling a relative that an item will one day be his or hers could cause trouble later.

A solicitor should offer advice on inheritance tax (IHT) planning as part of the service. Simple measures can save the estates of most homeowners tens of thousands of pounds in tax. Couples with assets of £600,000 or more, for instance, can save their heirs £120,000 by providing for a discretionary trust so that both parties use the tax-free IHT allowance of £300,000.

Legacies to charity could also be part of tax planning. Cancer Research, under its Free Will programme, will pay for a solicitor to draw up or update your will if you are aged 55 or older. There is no obligation to leave money to the charity in return for this help.

Alternatively, solicitors participating in the Will Aid scheme – a seasonal campaign that will next run in November 2008 – ask clients to make a donation to charities, including the British Red Cross, Christian Aid and Help the Aged, in place of a fee. Suggested donations are £75 for a single will or £110 for mirror wills.

A key element of making a will is the naming of executors to ensure that your will instructions are carried out. These are often unpaid friends or family members, typically a spouse or partner, but can be paid professionals – solicitors or a bank or building society. Unpaid executors can choose a solicitor to do the work and reclaim fees and expenses from your estate.

(28/08/2007)
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3. Gaydar caught on IHT radar

On the death of Gary Frisch, a South African computer graduate who had set up the Gaydar website in 1999, his will left the bulk of his estate worth an estimated £6 million to his business partner and former lover. The report estimates that IHT of around £2.5 million may be payable because there was no civil partnership marriage.

Jon Golding of Golding Taxation Services said: "An inheritance tax liability would be the outcome if there was no civil partnership marriage in such circumstances. However, in this case I would also be looking at the domicile position of the deceased and in this case it may be that this proves to be somewhere other than the UK, so affording some relief maybe".

Mr Golding adds: "Alternatively, one should also be looking at business property relief; in cases where a business is involved as this can attract 100 per cent IHT relief if held for at least two years. If the assets being passed on are part of the business or are shares in the business then a 100 per cent exemption from IHT may be due. However, the simplest and most efficient method in such circumstances would have been a civil partnership union as a married couple. Those in a same sex union wishing to get married can apply for a registration certificate under section 2 of the Civil Partnership Act 2004, and once they have this, they will be treated for the purposes of all taxes in the same way as a married couple. The CPA 2004 creates a new legal status of civil partner in respect of their relationship and applies from 5 December 2005, when the CPA 2004 came into force”.

For tax purposes, civil partners who are married will be treated the same way as married couples, and tax charges and anti-avoidance rules apply in equal measures. For IHT purposes, transfers between the two of them will be exempt from tax during lifetime and on death. The same treatment applies for capital gains tax (CGT) purposes, so that in the situation where two properties are owned by them, one will have to be treated as the main residence as with married couples. An election should be made within two years of the certificate being issued. See Taxation of Chargeable Gains Act 1992 section 222(5)(6).

Where a number of properties are owned, whether jointly or solely by one partner or both, then one will be treated as the main residence for principal private residence exemption purposes and any other property treated as a taxable investment property. One effect of a civil partnership union is that where one civil partner has been living in another’s property and/or being supported then they can make application under Inheritance (Provision for Family and Dependants) Act 1975 for reasonable financial provision. In addition, if one civil partner settles property on trust such that the other partner can benefit from the settlement then the settlor is liable to CGT by reference to capital gains realised by the trustees.

(21/08/2007)
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4. Inheritance tax abolition?

The proposals to abolish inheritance tax arose after a report on the subject was commissioned by the Conservatives some 18 months ago. The proposals were officially unveiled in the City recently and may reshape the tax on estates on death.

It is expected the review will suggest inheritance tax (IHT) should be replaced by a revised form of capital gains tax (CGT). In the proposals all assets held for more than ten years before death of the individual would be exempt from tax altogether. An individual’s main residence would in any case be exempt from IHT as well as CGT.

The review states that " … inheritance tax is not a popular tax. The swift rise of house prices in much of the country has resulted in many people, who could not in any sense be described as rich, suddenly finding that their family will be liable to pay substantial amounts upon their estate. We recommend the abolition of inheritance tax".

About 700,000 people die each year in the UK, and inheritance tax affects some 40,000 estates. The Treasury's income from the IHT levy has more than doubled from £1.7 billion in Tony Blair's first year in power to an estimated £4 billion in the current financial year. This increase has arisen mainly from the rise in the value of properties which have outpaced the increase in the nil rate band of IHT, currently set at £300,000.

Jon Golding of Golding Taxation Services said: "If IHT was to be abolished then amongst those to gain would be owners of property which has increased in value. Also, ironically, the Treasury would benefit from the fact that those high net worth non—UK individuals who are reticent about staying in the UK longer than seventeen years could make a greater financial commitment to the UK which in turn would boost the economy and the Treasury would receive, I believe, far more than the billions lost in inheritance tax revenues. Also, those UK individuals leaving these shores would no longer be forced to look for loopholes and offshore havens to secret their wealth".

There will also be losers if abolition of IHT goes ahead and is replaced by a revised form of CGT. Mr Golding suggested that "those who have to sell their homes and then reside in care homes will not benefit from the replacement of IHT with a revised form of CGT. This is because their home which would be exempt from the replacement CGT whilst the substitution of investments to fund the care home fees would not be exempt until a period of ten years had elapsed and one wonders whether their longevity would make this achievable. However, all in all these changes, if they were implemented, would be welcome even by tax practitioners such as me who would also lose out on a fee source!"

(17/08/2007)
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5. Negotiating the financial minefield of splitting up

The concept of common law marriage rights has not existed since the protection under “common law” marriages, which were abolished as far back as 1753. Prior to that date “common law marriage” was widely recognised and accepted as a de facto status appropriate to the vast majority of the populous.

When the Marriage Act of 1753 was introduced by Lord Hardwicke For the Better Preventing of Clandestine Marriages, it defined and laid down the formalities of the institution of marriage, which had been essentially limited to the upper strata of society prior to that date and saw the end of common law marriage. See also the Law Commission consultation paper Cohabitation: The financial consequences of relationship breakdown at www.hmcourts-service.gov.uk/cms/wills.htm.

Jon Golding of Golding Taxation Services said: “Where an unmarried couple are sharing the family home, or other assets, it is important for the owner to consider making a declaration of trust that the property belongs to them both as joint tenants, possibly in equal shares”.

Under intestacy rules surviving partners of a “common law” marriage do not benefit unless the asset(s) has been severed under a declaration of trust then that property passes to the joint tenant by survivorship. Any balance of assets becoming the subject of the intestacy rules are subject to division amongst the deceased’s relatives who are entitled in priority under section 49(1)(a) of the Administration of Estates Act 1925 (not applicable in Scotland). Therefore, cohabitees will not automatically acquire the family home (or other assets) of their partner and may be required to leave the family home by the beneficiary of the deceased partner who inherits the assets under the intestacy rules. This might mean that the surviving partner has to vacate the family home.

In the case where a valid will has been made and registered under section 9 of the Wills Act 1837 then, notwithstanding any invalid execution of the will, the beneficiaries named will benefit after debts, losses, and funeral/administrative expenses. In cases of cohabitees who benefit under their partner’s will, there will be no inheritance tax exemption that applies under s 18 of the Inheritance Tax Act 1984 for transfers between married couples and civil partners. This will mean that an estate that is valued in excess of the £285,000 nil rate band will attract an IHT charge at 40 per cent, which will diminish the “common law” partner’s assets still further.

If a cohabitee partner decides to sever their assets in favour of their partner, such as the family home under declaration of trust, then this will be a potentially exempt transfer (PET) where one party had not contributed to the cost, and if the donor partner dies within seven years, there may be a latent IHT liability. See section 3A of the Inheritance Tax Act 1984. Jon Golding advised: “Until legislation is introduced to protect the rights of cohabitees, those living together as husband and wife should ideally consider drawing up mutual wills or severing their assets so that they are held as joint tenants or even consider tying the knot!”

(31/07/2007)
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Articles

1. Gifts with reservation: the rules explained

Journal: Tolley's Practical Tax Newsletter
Author: Mark Mclaughlin
Citation: 28 PTN 16, 129
Issue date: 03 August 2007
Summary: A gift with reservation (GWR) is, broadly, a gift of property made by an individual on or after 18 March 1986, whereby either the recipient does not enjoy possession of the gifted property, or the donor continues to enjoy or benefit from it; if there is a reserved benefit within seven years of the donor's death then the gift is caught by the GWR rules, section 102(1). The effect is that the gifted property is treated as part of the donor's estate for IHT purposes. This could result in the same gift being taxed twice. However, there are provisions which provide relief in those circumstances.
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2. Valuing a severable share of a joint tenancy in real property

Journal: Property Service
Author: Leon Swerling
Citation: (2007) 5 EMIS Professional Publishing Property Service 2, 36
Issue date: 27 July 2007
Summary: In the case of Dingmar v Dingmar [2006] EWCA Civ 942 (12 July 2006) the Court of Appeal decided (by a majority of 2:1, with Lloyd LJ dissenting) that the words “at the value thereof immediately before his death” in the Inheritance (Provision for Family and Dependants) Act 1975, section 9(1), did not operate as a cap and did not prevent the court from awarding a wife a half-share in the house in respect of which her deceased husband had been a joint tenant.

Section 9(1) of the 1975 Act reads as follows: “Where a deceased person was immediately before his death beneficially entitled to a joint tenancy of any property, then, if, before the end of the period of six months from the date on which representation with respect to the estate of the deceased was first taken out, an application is made for an order under s 2 of this Act, the court for the purpose of facilitating the making of financial provision for the applicant under this Act may order that the deceased’s severable share of that property, at the value thereof immediately before his death, shall, to such extent as appears to the court to be just in all the circumstances of the case, be treated for the purposes of this Act as part of the net estate of the deceased”.
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3. Statutory claims under the Inheritance (Provision for Family and Dependants) Act 1975 – a question of sufficient interest

Journal: Property Service
Author: Leon Swerling
Citation: (2007) 5 EMIS Professional Publishing Property Service 2, 15
Issue date: 27 July 2007
Summary: On 23 March 2007 in O’Brien v Seagrave and Another [2007] EWHC 788 (Ch) Judge Mackie QC, sitting as a High Court judge, held that a claimant who had a right to bring a statutory claim for provision from the deceased’s estate under the 1975 Act could be said to have a sufficient “interest” in the estate to permit her to proceed with a probate claim under CPR 1998 57.7(1). This rule requires that the claim form in a probate claim has to “contain a statement of the nature of the interest of the claimant […] in the estate”.

Judge Mackie QC allowed an appeal by the claimant, Julia O’Brien, against an order made by Master Price on 2 November 2006, striking out her probate claim against the first and second defendants, Lee Seagrave and Jeanette Seagrave, because her claim form failed to: disclose reasonable grounds for bringing such a claim; and comply with CPR 1998 57.7(1), which required that the claim form in a probate claim had to “contain a statement of the nature of the interest of the claimant […] in the estate”.
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4. Problems with the interpretation of wills with reference to Gibbs v Harding and others

Journal: Property Service
Author: Leon Swerling
Citation: (2007) 5 EMIS Professional Publishing Property Service 2, 59
Issue date: 27 July 2007
Summary: In the case of Gibbs v Harding and others [2007] EWHC 3 (Ch) (12 January 2007), Mr Justice Lewison held that on the proper interpretation of the will, the estate of the deceased was to be held by a Roman Catholic diocese on charitable trusts.

The claimant (G), administrator of the estate of the deceased (H), sought clarification and interpretation of the will of H. H was a nun who had been involved in the running of a community centre for Caribbean people (CCC) at premises provided by the Roman Catholic Diocese of Westminster. H had made a will in which she had made legacies to certain family members, and had left the residue of her estate to the diocese’s own trust and other trust funds administered by it. As she lay dying in hospital, H executed another will.

The relevant provision for interpretation follows: “If I should die in the meantime before making another will it is my wish that everything I possess be taken over by the Diocese of Westminster to hold in trust for the Black community of Hackney, Haringey, Islington and Tower Hamlet”.
The court had to determine whether that provision had created a valid, testamentary gift, and if so, on what terms.

The various possibilities canvassed by the claim form were that the estate was held: (i) on trust for the diocese absolutely; (ii) by the diocese on charitable trusts; (iii) by the diocese on trust for the CCC; (iv) as if on intestacy, as canvassed by the deceased’s nieces and nephews who would be entitled on intestacy. 

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Books

1. How to book and claim discounts
  • Law Society Publishing: quote “Probate Section” to receive a 20 per cent discount off related titles (excluding directories) via Prolog at The Law Society, PO Box 99, Sudbury Suffolk CO10 2SN, telephone 0870 850 1422, fax 01787 313 995 or email lawsociety@prolog.uk.com.
  • LexisNexis Butterworths: quote “Law Society Section discount offer” when ordering via www.lexisnexis.co.uk, customer.services@lexisnexis.co.uk or 020 8662 2000.

This e-alert is not intended to provide comprehensive records of information concerning the probate sector. If you have any feedback or suggestions, please email probatesection@lawsociety.org.uk. This e-alert was created in conjunction with LexisNexis UK Legal Updater Service. For further information about any of the articles, please contact sabina.smith@lexisnexis.co.uk. The views expressed by the Legal Analysis interviewees are not necessarily those of the proprietor.
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