Private client section

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Issue 28 – May 2008

Contents

Cases
Features

Articles
News

Events

Offers (how to claim book discounts)

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Cases

1. SpC 678 McCall and Anor (personal representatives of McClean, deceased) v Revenue and Customs Commissioners

Cite: SC 3231/2005
Court: Special Commissioners
Judges: Charles Hellier
Hearing date: 7 April 2008
Representation: William Massey QC and Timothy Evans for the appellants. Nicolas Hanna QC for the respondents
Summary: inheritance tax – exempt transfers and relief – business property – relevant business property – fields let out under “conacre” or agistment arrangements to graziers – whether a business – work carried out by son-in-law while owner's mental capacity failed – whether business belonged to the landowner – whether business excluded from relief as consisting wholly or mainly of making or holding investments – Section 105(3) Inheritance Tax Act 1984

Until her death in January 1999, Mrs McClean owned approximately 33 acres of farmland at Ballyclare in County Antrim. She had a house adjoining the land, and one of her two daughters, Mrs Mitchell, lived with her husband, Mr Mitchell, next door. Mrs McClean's other daughter lived in County Tipperary. Unfortunately, the relationship between Mrs McClean's two daughters was somewhat strained.

Mrs McClean inherited the land from her husband on his death in 1983. She did not farm the land herself, but it was let under conacre (or more technically agistment) agreements to local farmers, and those farmers' beasts grazed the land during the months when the grass grew. Throughout this period, Mr Mitchell tended the land.

As Mrs McClean grew older, her memory and mental capacity diminished. Prior to her husband's death, she had been an active decisive woman but thereafter was a rapid decline. In 1986 or 1987, she started living with Mr and Mrs Mitchell for most of each day, returning to her own house only for a couple of hours.

After her husband's death, Mrs McClean used the services of local land agents to let the fields. As Mrs McClean's mind failed, Mr Mitchell became more involved with the arrangements.

In 1992, Mrs McClean went to visit her daughter in Tipperary. She was taken there by neighbours in their car. Mr and Mrs Mitchell expected it to be a short visit, but Mrs McClean remained in Tipperary until her death some seven years later. Her mind continued to deteriorate during that time.

While Mrs McClean was away, Mr Mitchell continued to tend the fields and organised their letting, usually through a land agent. The rents were paid into Mr and Mrs Mitchell's bank account and were not paid out to Mrs McClean. Mr and Mrs Mitchell continued to look after Mrs McClean's house.

The local council zoned land that included Mrs McClean's fields for development use. As a result, at the time of her death, the market value of the land was £5,800,000, whereas its agricultural value was only £165,000.

In this appeal, Mrs McClean's personal representatives claimed that the land was “relevant business property” within the Inheritance Tax (IHT) Act 1984, section 105. If it was then the whole of the value of the land falls out of charge to IHT at her death; if it was not then only the agricultural value would fall out of charge.

Although it was found that Mrs McClean did own a business at the date of her death whose assets included the fields, it was held that the business was one consisting wholly or mainly of the holding of investments.

As a result the appeal was dismissed.
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2. Klinar v Slovenia (app no 34544/02)

Cite: BLD0904080507
Court: European Court of Human Rights
Judges: Judge Casadevall (President), Judges Fura-Sandstrom, Birsan, Gyulumyan, Myjer, Ziemele and Pirnat, and Mr S Quesada (Section Registrar)
Hearing date: 8 April 2008
Summary: human rights – fair trial – civil right – length of proceedings – effective remedy – arguable claim of convention violation – applicant involved in inheritance proceedings – proceedings lasting nine years and two months – applicant unable to obtain remedy at national level in respect of excessive length of proceedings – whether length of proceedings incompatible with “reasonable time” requirement – whether lack of effective domestic remedy – whether applicant entitled to just satisfaction for non-pecuniary loss – European Convention on Human Rights, articles 6(1), 13, 41

In the instant case, violations of the applicant's right to a hearing within a “reasonable time” under article 6(1) of the European Convention on Human Rights, and the right to an effective domestic remedy under article 13 thereof, had been found in respect of a set of inheritance proceedings that had been conducted at one level of jurisdiction and, which lasted nine years and two months.
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3. RH v RH (Costs) (adjustment for gross disparity)

Cite: [2008] All ER (D) 67 (Apr)
Court: Family Division
Judges: Singer J
Hearing date: 27 February 2008
Summary: practice – family proceedings – ancillary relief – costs – disparity of costs taken into account in final settlement – whether judge erred in taking into account disparity – Civil Procedure Rules 1998, SI 1998/3132, rule 44.3 – Family Proceedings Rules 1991, SI 1991/1247, rules 2.69, 2.69D

Following a protracted ancillary relief application brought by the husband, the court, applying rules 2.69, 2.69B and 2.69D of the Family Proceedings Rules 1991, SI 1991/1247, and rules 44.3(4) and (5) of the Civil Procedure Rules 1998, SI 1998/3132, ordered that the wife should pay £670,000 to the husband on a clean break basis. The wife argued that her £1.55 million inheritance should be disregarded from the calculation while the husband sought the equalisation of their capital situation. The husband further contended that, in light of the wife's conduct in attempting to conceal the ownership of several properties, he was entitled to more than half. On 9 February 2006, the husband formulated an offer in which settlement would be reached through a property exchange in his favour or a £750,000 payment being made to him. The wife neither accepted nor rejected the husband's offer. The court rejected the respective arguments of the wife in relation to disregarding of the inheritance, and the husband, in respect of entitlement to more than a half share. In reaching the sum of £670,000, the court had regard to the considerable disparity in the costs that each side encountered. At the date of the award, the wife's costs were £265,000 and the husband's £486,000. Accordingly, the court adjusted the assets subject to division by, in effect, writing back £225,000 of the husband's costs. The husband appealed.

He contended that the judge erred in discounting £225,000 and that the award payable should have been £782,500 to achieve parity.

The court ruled:
The husband's offer of 9 February represented a genuine offer to compromise the litigation that the wife should have accepted. Her failure to even respond to it resulted in both parties being doomed to proceed to trial on the full range of issues before the court. However, it was not just that the wife should bear the full responsibility for the husband's costs incurred from the point at which the offer was made, in light of the fact that the husband's approach to the litigation had verged on the obsessional and that he had been unreasonable to expend so much more than the wife in litigating the case. As such, the husband should not recoup more than that which was reasonable for the wife to pay.

The wife should pay the husband's costs in the fixed sum of £150,000.
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Features

1. Brief: Revenue and Customs Brief 23/08

HM Revenue and Customs (HMRC) gave notice of appeal to the High Court against the decision of Special Commissioner in the case of the Executors of the Estate of Mrs Marjorie Edna Bower (deceased) and the Commissioners for HMRC.

Pending the outcome of the appeal, HMRC will deal with cases involving a gift for inheritance tax (IHT) purposes involving a discounted gift scheme (DGS) in which the settlor is older than 90 next birthday (actual or deemed) or is considered to be uninsurable as at the date of the gift. HMRC published a Technical Note in May 2007 confirming its long held practice.

When an IHT chargeable event arises, the value of any gift element of a DGS is considered by the actuarial team of HMRC. Open cases already being considered by the actuarial team will remain under review pending the outcome of the current litigation.

New cases will continue to be dealt with in accordance with the May 2007 technical note. Where the actuarial team consider (in calculating the value of the gift element) that the value of retained rights is only nominal (because of age of the donor or because the donor is considered to be uninsurable) we will advise those liable for the IHT accordingly, explain that we will not press for payment of the additional IHT for the time being, and suggest they consider putting an appropriate sum on account to stop (further) interest accruing on any IHT due.
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2. IHT administration simplified

The number of inheritance tax (IHT) accounts that would otherwise need to be delivered to HM Revenue and Customs (HMRC) when there is not tax at stake were significantly reduced from 6 April 2008.

The Inheritance Tax (Delivery of Accounts) (Excepted Transfers and Excepted Terminations) Regulations 2008 are designed to reduce significantly the number of IHT accounts that would otherwise need to be delivered when there is not tax at stake and little or no compliance risk. They reflect comments received in response to proposals published on the HMRC's website in 2007.

They increase the monetary limits below which an account does not have to be delivered, and link them to movements in the IHT nil rate band, and they align the treatment of excepted transfers and excepted terminations.
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3. Self assessment trust and estate tax returns

The IHT and Trusts newsletter for April 2008 specifies the forms to be used in the administration of a deceased person’s estate.

When formal self assessment tax returns are required for a trust or for the administration period of a deceased person’s estate, form SA900 should be used and not the SA100 version. The same principle applies to any supplementary pages that are required, for instance, the trust and estate pages (forms SA901, etc) should be used instead of the individual tax return pages (forms SA101, etc).

If the incorrect version is used, it may not be possible to process the return, and the form may be rejected. This may impact on tax returns not being filed on time and the taxpayer may receive a fixed penalty notice.

If the tax is not paid on time the taxpayer may be charged interest and surcharges.
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4. IHT nil rate band

The nil rate band has risen to £312,000 for deaths and other chargeable events on or after 6 April 2008. This amount has been specified in the April 2008 IHT and Trusts newsletter. The limit for determining whether an estate can qualify as an excepted estate remains at £300,000 until 6 August 2008.
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5. Transferable nil rate band

The Finance Bill 2008 contains draft legislation to implement a measure allowing the transfer of unused inheritance tax (IHT) nil rate band between spouse and civil partners where the survivor dies on or after 9 October 2007. The Bill contains some extra measures to reflect issues that have arisen since the Pre-budget Report.

When the transfer of unused nil rate band accrues through an intervening death, but no claim is made on that death, the personal representatives of the survivor will be allowed to include a claim to transfer unused nil rate band from the earlier death with their claim.

The interaction of these new provisions with a claim under Scottish law to 'legitim' has been clarified. Broadly, if a claim to 'legitim' is made after a claim to transfer unused nil rate band, HM Revenue and Customs has the power to adjust the latter claim to suitably reflect the impact of the legitim claim.

The existing rules under which values ascertained for IHT purposes apply for capital gains tax (CGT) purposes will be changed so that where a value is ascertained solely for the purpose of ascertaining the amount of TNRB, that value will not apply for CGT purposes.
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6. Inheritance tax penalties

The Finance Bill 2008 contains legislation to extend those provisions and create a single penalty regime for incorrect returns across all the taxes, levies and duties administered by HM Revenue and Customs (HMRC), including inheritance tax.

The proposals include a provision enabling HMRC to levy a penalty on a third party who deliberately provides false information to or deliberately withholds information from the taxpayer. In an IHT context, an example may be where the donee of a lifetime gift from someone who has died deliberately withholds information about the gift from the personal representative, causing them to deliver an incorrect account that understates the amount of IHT due. The amount of the penalty would be calculated in the same way as if payable by the taxpayer.

The new provisions will have effect from a date to be appointed by Treasury Order. It is expected that the new provisions will cover errors on returns for periods commencing on or after 1 April 2009, when the return is due to be filed on or after 1 April 2010.
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Articles

1. Private client – Preparing wills and other documents for family members. Beware!

Journal name: Property Service
Author: Leon Swerling
Citation: (2008) 5 EMIS Property Service 4, 25
Issue date: 4 April 2008
Summary: Looks at the lessons to be learnt from the case of Franks v Sinclair and Others [2006] EWHC 3365 (Ch) (21 December 2006). This was a knowledge and approval case. The will had been properly executed and the testatrix had mental capacity. However the circumstances excited the suspicion of the court so that it was unable to presume that the testatrix knew and approved the contents of the will. Mr Franks, a solicitor, and son of the testatrix, sought to prove a will of 1994 in solemn form and he had to establish affirmatively that the testatrix had known and approved the contents of the will.
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2. How can good intentions be turned into hard cash?

Journal name: Third Sector
Author: Helen Barratt
Citation: Third Sector, 16 April 2008
Issue date: 16 April 2008
Summary: Reports on why the Remember a Charity consortium is shelving a Michael Buerk-fronted television campaign to concentrate on a social marketing strategy aimed at turning pledges into action on charitable legacies. For the past three years, Michael Buerk, the former BBC newsreader, has urged television viewers and broadsheet readers to “eave the world a better place” with a legacy. Buerk's gravitas and his delivery of the I Will, Will You? message helped to raise awareness of charitable legacies to record highs in 2006, according to the organisation behind the advertising, the Remember a Charity consortium, made up of more than 160 charities.
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Please note subscribers can go to LexisNexis Butterworths for further details about all the above articles. Non-subscribers can sign up for a free trial of the online service.

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 claire.melvin@lexisnexis.co.uk. The views expressed by the Legal Analysis interviewees are not necessarily those of the proprietor.
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