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Issue 29 – June 2008

Contents

Cases
Statutory Instruments (SIs)

Features

Articles
News

Events

Offers (how to claim book discounts)

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Cases

1. Scammell and another v Farmer

Cite: [2008] All ER (D) 296 (May)
Court: Chancery Division
Judges: Stephen Smith QC
Hearing date: 22 May 2008
Representation: Anthony Allston (instructed by Sheratte Caleb) for the claimant; Edward Rowntree for the first and second defendants; and Richard Buswell for the third to sixth defendants
Summary: Probate – Will – Validity – Testatrix suffering from Alzeihmer's disease – Testatrix executing will primarily in favour of defendant – Claimant grandchildren challenging validity of will – Whether will invalid – Mental Capacity Act 2005

The claimants were the grandchildren of the testatrix. Their father, her son, had died when they were young. The testatrix had always expressed an intention to provide for the claimants, on account of the premature death of their father and to ensure that they had a good start in life. The defendant was the sole surviving child of the testatrix. In 1995, unbeknown to her family, the testatrix executed a will. Under the terms of that will, the home of the testatrix (the property) was devised to the claimants in equal shares. The defendant had purchased the property in her own name with her own funds but had transferred the property to the testatrix in about 1995 for no consideration other than “natural love and affection”.

The remainder of the testatrix's estate, at that stage approximately equal in value to the property, was devised equally between the defendant and the claimants' mother. The testatrix was diagnosed with Alzheimer's disease in September 2001, for which she was prescribed (and took) medication. The defendant became aware of the 1995 will in about May 2002. The contents of the will upset the defendant, and she informed the testatrix of that fact. The defendant felt it right that the bulk of the estate be left to her in light of the fact that she was the sole surviving child of the testatrix and had purchased the property before transferring it to her mother. Following discussions and correspondence on the issue, the testatrix and the defendant attended a solicitor in January 2003.

The solicitor was not informed that the testatrix suffered from Alzheimer’s, nor of the fact of the 1995 will. A list of the Testatrix's wishes was handed to the solicitor in the handwriting of the defendant. Under the terms of the 2003 will, the majority of the testatrix's estate was left to the defendant. The 1995 will was subsequently destroyed by the defendant. The testatrix died on 3 July 2003. The defendant obtained a grant of probate of the new will in September 2003. The claimants issued the instant proceedings, whereby they challenged the 2003 will.

The 2003 will was challenged on the bases of (i) a lack of the requisite testamentary capacity on the part of the testatrix; (ii) want of knowledge and approval of the contents of the will; and (iii) undue influence. A further issue arose as to whether the determination of the testatrix's mental capacity fell to be conducted under the Mental Capacity Act 2005.

The claim would be dismissed.

While sections 16 to 18 of the Mental Capacity Act 2005 concerned the power of the court to authorise the making of wills on behalf of people who lacked capacity, the question of whether a particular testator had capacity when a will was made did not fall within the scope of the 2005 Act. The question of capacity at the time a will was made fell to be determined under existing common law principles.

On the evidence, the claimants had failed to demonstrate that the 2003 will fell to be set aside on the grounds of incapacity, want of knowledge and approval or undue influence.
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2. Burden v United Kingdom (APP no 13378/05)

Cite: [2008] All ER (D) 391 (Apr)
Court: European Court of Human Rights
Judge: Judge Costa (President), Judges Bratza, Zupancic, Tulkens, Turmen, Birsan, Vajic, Tsatsa-Nikolovska, Baka, Ugrekhelidze, Kovler, Steiner, Borrego Borrego, Myjer, Thor Bjorgvinsson, Ziemele and Berro-Lefevre, and Mr V Berger (Registrar)
Hearing date: 29 April 2008
Alternative citations: [2008] EWHC 514 (Ch)
Representation: Michele Temple (instructed by Hodgsons & Mortimer) for the claimant; Bruce Walker (instructed by Freeman Johnson) for the defendant
Summary: Inheritance tax – Property – Peaceful enjoyment of possessions – Discrimination – Applicants unmarried sisters living in house in joint names – Applicants liable to inheritance tax on death of sister – Applicants complaining of discrimination because married persons or those in civil partnerships not subject to inheritance tax in same way – Whether complaint admissible – Whether applicants' rights violated – European Convention on Human Rights, articles 14, 34, 35, First Protocol, article 1

Two sisters who had lived together, in a stable, committed and mutually supportive relationship, all their lives had not had their rights under article 1 of the First Protocol to the European Convention on Human Rights, in conjunction with article 14 of the Convention, violated by reason of the fact that under domestic legislation they could not benefit from inheritance tax exemption granted to those who were married or had contracted civil partnerships. It was true that they were victims for the purposes of the application to the European Court of Human Rights, as they established that there was a real risk that, in the not too distant future, one of them would be required to pay substantial inheritance tax on the property inherited from her sister, but their position was not analogous with a married person or a civil partner. The relationship between siblings was qualitatively of a different nature as the essence of the connection between siblings was consanguinity, whereas one of the defining characteristics of a marriage or civil partnership was that it was forbidden to close family members.
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3. Trustees of the Nelson Dance family settlement

Cite: SPC 682
Court: Special Commissioners
Judge: John F Avery Jones
Hearing date: 8 May 2008
Representation: William Massey QC; Nicholas Caddick
Summary: Inheritance tax – Exempt transfers and relief – Business property relief – Value of business for business property relief purposes – Deceased carrying out farming business – Deceased executing declarations of trust whereby property transferred to trustees of settlement thereby giving rise to transfer of value – Transfer of value not consisting of business or an interest in a business – Land having development value and trustees claiming business property relief – Whether value of any relevant business property had to consist of transfer of a business or could be simply business assets – Inheritance Tax Act 1984, sections 3, 104, 105(1)(a)

The deceased, D, owned and carried on the business of farming as a sole trader.
The assets used in the business included land and buildings. D made a transfer of value, as defined in Inheritance Tax Act (IHTA) 1984 section 3, executing two declarations of trust by which some of the business assets, comprising of land, were transferred to the trustees of the settlement and that property, under the settlement, was "relevant property" for the purposes of IHTA 1984 section 58. However, under the transfer of value D did not transfer a business or an interest in a business to the trustees. D died on 1 April 2004.

The land qualified as agricultural property for the purposes of IHTA 1984 section 116, was occupied by D for the purposes of agriculture throughout the period of two years ending with the date of the transfer of value and was not subject to a binding contract for sale at the time of the transfer of value.

The land had development value, and the trustees claimed business property relief under IHTA 1984 section 104 for the excess value on the basis there had been a transfer of value that resulted in a reduction in the value of "relevant business property" (as defined in IHTA 1984 section 105) in D's estate, regardless of whether an actual transfer of the "relevant business property" had taken place.

By a notice of determination dated 23 April 2007, the Revenue disallowed the claim on the basis that none of the value transferred was attributable to the value of relevant business property. The trustees appealed and the issue was heard as a preliminary issue.

The trustees contended that D's estate included relevant business property, that by reason of the transfer of value the whole of the value transferred (the amount by which the value of his estate was less than it would be but for the disposition, see section 3(1)) was attributable to the value of the relevant business property (being the net value of the business, see section 110); accordingly, the whole of the value transferred was treated as reduced in the case of property consisting of a business or an interest in a business (under section 105(1)(a)) by 100 per cent. The policy of the relief was not to encourage transfers of businesses but encourage the carrying on of business, and so there was no policy reason to restrict the relief to gifts of businesses.

The relief operated on death even if the business then ceased. The Revenue submitted that the reference to the value of the relevant business property implied that the transfer had to be of a business (including part of a business capable of being a separate business), but not merely business assets. The reference in IHTA 1984 section 104 to value transferred did not mean an amount as it did in section 3, but the nature of the property.

The policy of the relief was both to encourage business and the transfer of business, and so the policy required restricting the relief to transfers of businesses. They also argued, inter alia, that they were supported by the conclusions of three textbook writers – McCutcheon on Inheritance Tax (4th edition, paragraph 14-19, Christopher Whitehouse, Sweet & Maxwell Ltd, 1990); Dymond's Capital Taxes (paragraph 24.710, Christopher Whitehouse and Emma Chamberlain, Sweet & Maxwell Ltd, 1985); and Foster's Inheritance Tax (G1.11, Richard Wallington, Ian Marsh and John Tiley, Bliss Books, 1991) – that a whole business must be transferred for the relief to apply.

The Special Commissioner considered that, on the proper interpretation of IHTA 1984 section 104(1) in the case of property consisting of a business as defined in IHTA 1984 section 105(1)(a), all that was required was that the value transferred by the transfer of value was attributable to the net value of a business (for example, the value of the assets used in the business (including goodwill) reduced by the aggregate amount of any liabilities incurred for the purposes of the business).

In the case of business relief, the value transferred had to be attributable to the value of assets; whereas in the spouse exemption (in section 18) the value transferred had to be attributable to property (rather than the value of the property) which became comprised in the spouse's estate. Business relief was therefore more concerned with the value of assets than property, and although the attribution was to the net value of the business as a whole, that did not imply that the value transferred had to relate to the whole business.
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4. Glass v Segermann and others

Cite: [2008] All ER (D) 15 (May)
Court: Chancery Division
Judge: Michael Furness QC sitting as a deputy judge of the High Court
Hearing date: 1 May 2008
Representation: Tony Oakley (instructed by Penningtons Solicitors LLP) for the claimants; Mark Baxter (instructed by Adams & Remers) for the defendants
Summary: Deed – Rectification – Gift – Mistake of law or fact – Transaction not having intended effect – Claimant contending deceased intending to grant him a one-third interest in property – Claimant granted a sum representing less than a one-third interest – Whether rectification should be ordered

The deceased's wife died in 1989, leaving her half share of the property in issue to the deceased. The defendant executed a deed of variation in March 1991, creating a trust for the benefit of their children, the parties to the action, and setting aside a share of the property equivalent to £100,000. Subsequently, the deceased executed a deed of gift in relation to the claimant, his son. The gift was expressed to be for £152,000, which, based on an erroneous estimation of the value of the property, and taking into account of the creation of the trust, represented a third of the remainder of the property. When the deceased died the property was valued at £1.1 million. The claimant sought rectification of the agreement to reflect his contention that it was the deceased's intention to grant him a one-third share in the property.

The claimant relied on contemporaneous evidence to support his view. The defendants, his sisters, did not defend his claim.

The claim would be allowed.

On the contemporaneous evidence, it was clear that it had been the deceased's intention to grant the claimant a one-third interest in the property.

The deed of gift would be rectified to reflect the intention of the deceased.

Sherdley v Sherdley [1986] 2 All ER 202 considered; Slocock's Will Trusts, Re [1979] 1 All ER 358 considered; National Enterprises Ltd v Racal Communications Ltd [1974] 1 All ER 1118 applied; Colebrook's Conveyances, Re, Taylor v Taylor [1973] 1 All ER 132 applied.
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Statutory Instruments (SIs)

1. SI 2008/DRAFT: The Inheritance Tax (Qualifying Non-UK Pension Schemes) Regulations 2008

Enabling power: Inheritance Tax Act 1984, section 271(a)
Commencement: 6 April 2008
Relevant legislation: Inheritance Tax Act 1984, section 256(1)(a)
Summary: These Regulations prescribe the requirements which a non-UK pension scheme must satisfy for the Inheritance Act 1984, section 217A. They set out the requirements that must be satisfied by various non-UK pension schemes, the conditions that must be satisfied for a scheme to be recognised for tax purposes under the tax legislation of a country or territory in which it is established, and make provision as to regulatory requirements to which the pension scheme must be subject.
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Features

1. Sisters burdened with IHT after marathon court battle

Two elderly sisters from Wiltshire have lost a rare final appeal to the Grand Chamber of the European Court of Human Rights (ECHR) over inheritance tax (IHT). Joyce Burden, 90, and her sister Sybil, 82, who have lived together all their lives, have been fighting for decades to avoid potentially crippling inheritance tax on their Marlborough home when one of them dies.

The sisters claimed the UK's IHT breached their human rights because it exempted married and gay couples from paying IHT but did nothing for cohabiting siblings. As Joyce Burden commented: "If we were lesbians we would have all the rights in the world, but we are sisters, and it seems we have no rights at all."

However, in a 15-2 vote, the Grand Chamber of the ECHR in Strasbourg ruled that the sisters do not face unfair discrimination, although it upheld an earlier human rights ruling that national governments were entitled to some discretion when deciding taxation arrangements.

If the sisters had won, the IHT system would have had to be radically changed. Julian Washington, a partner at Mayfair law firm Forsters LLP, said: "There will be sighs of relief at the treasury that the government has won its case against the Burden sisters after their rare final appeal to the Grand Chamber of the European Court of Human Rights where – unlike their narrow defeat first time round – they were convincingly beaten by 15 to 2."

The sisters hoped their battle would prove successful after the UK Civil Partnership Act 2004 first recognised gay and lesbian couples for IHT purposes. They turned to the ECHR, claiming the Act violated human rights articles outlawing discrimination and guaranteeing the "protection of property". In 2006, they narrowly lost by 4-3, although three members of the court commented that their plight was awful and "particularly striking".

Mr Washington said: "The Grand Chamber decided that the UK government is quite entitled to give preferential tax treatment to spouses and now also to same sex civil partners. The hallmark of marriage and civil partnership is that both are legally recognised, public commitments that bring with them rights and obligations. The relationship of the two sisters is quite different: they have chosen to cohabit as siblings, so they do not fall into the privileged categories, which the UK is entitled to recognise."

For past 32 years, the sisters have written to the Chancellor of the Exchequer on the day before every budget, pleading for recognition under the tax rules as a cohabiting couple.

"This is the end of an epic struggle by the two sisters," said Mr Washington. "If they are still cohabiting when one of them dies, then they will now definitely face an inheritance tax charge. The rules allow that tax to be spread over 10 years – rather than being paid immediately – but if the surviving sister cannot afford that, a sale may be the only option."

The sisters said the decision means that when one of them dies, the other will have to sell their £875,000 four-bedroom home, as the surviving sister would have to pay inheritance tax of 40 per cent on her half of the value of the property once the £300,000 threshold had been deducted.
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2. Institute of Professional Willwriters completes first stage of OFT approval

The Institute of Professional Willwriters (IPW) has successfully completed the first stage of the Office of Fair Trading’s (OFT) Consumer Codes Approval Scheme.

By completing stage one, the IPW satisfied the OFT that its consumer code of practice promotes and safeguards consumer interests beyond the minimum requirements of consumer law. The IPW, which has 250 members across the UK, is an association for will writers. The IPW code covers the drawing up of wills, estate administration and other related activities.

Its key features and benefits require members to pass an entrance exam and complete ongoing training to maintain their professional knowledge; members provide consumers with a minimum seven-day cooling-off period; members complete work within strict time frames, agreed with the client; consumer prepayments and deposits will be protected in the event that a member is unable to provide the promised service; and a low cost, independent redress scheme will be available.

The IPW will now be invited to provide the OFT with evidence that the code is working in practice and delivering on its promises.

In doing so, the IPW will undertake comprehensive monitoring procedures, including compliance visits and consumer satisfaction surveys. Only codes that demonstrate they are effective in promoting consumer interests are entitled to display the OFT Approved Code logo.

Mike Haley, OFT director of consumer protection, said: "A will is an important document often made when time is of the essence. Consumers need help to identify professional organisations to assist them in making a will. Consumers who buy goods or services from a business with an OFT approved Code can expect a much higher standard of protection than that required by law."
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3. Trial extension of non-statutory clearances service to IHT BPR

From 1 May 2008, for a trial period of six months, HM Revenue & Customs (HMRC) will provide clearances to business owners on the availability of IHT business property relief when there is material uncertainty over the interpretation of the law. For older IHT legislation, this uncertainty must relate to a commercially significant issue.

At Budget 2006, the Chancellor of the Exchequer announced a review, led by Sir David Varney, of the relationship between large business and HMRC.

The review team consulted with over 140 large businesses and trade and representative bodies and identified four key outcomes that would benefit both large business and HMRC:

  • greater certainty; 
  • an efficient risk based approach to dealing with tax matters;
  • speedy resolution of issues; and
  • clarity through effective consultation and dialogue.

The “Review of Links with Large Business” report published in November 2006 outlined 14 key proposals that would together deliver these outcomes.

One of the proposals related to non-statutory clearances. A non-statutory clearance is written confirmation of HMRC’s view of the application of tax law to a specific transaction or event.

At Pre-Budget Report 2007, an extension was announced of the non-statutory clearances HMRC provides to all business customers from April 2008. Further details on the extended non-statutory clearances service that was implemented on 1 April 2008 can be found in HMRC Brief 20/08.

A trial has begun of a further extension of the non-statutory clearances HMRC provides to business owners in the area of inheritance tax business property relief.

From 1 May 2008, for a trial period of six months, clearances will be provided to business owners on the availability of inheritance tax business property relief (IHT-BPR) when there is material uncertainty over the interpretation of the law. For inheritance tax legislation older than the last four Finance Acts, there is a further requirement that the uncertainty relates to a commercially significant issue.

As part of the extended clearances service from 1 May 2008, new guidance on IHT-BPR clearances for business owners is on the HMRC website (www.hmrc.gov.uk/cap/clearanceiht.htm).

Guidance for businesses seeking clearances on issues other than IHT-BPR can be found on the HMRC website (www.hmrc.gov.uk/cap/links-dec07.htm).

All business owners and those acting on their behalf should send their applications relating to inheritance tax business property relief to the following:
IHT-BPR Clearances Team
Ferrers House
Castle Meadow Road
Nottingham
NG2 1BB
Email: mailpoint.e@hmrc.gsi.gov.uk

Other business clearance applications should continue to be sent to a client relationship manager or the HMRC Clearances Team as set out in HMRC Brief 20/08.

Comments on the guidance and the extended service can be sent to the following:
Emma Bailey
Tax Administration Policy
Central Policy
100 Parliament Street
SW1A 2BQ

Code of Practice 10 (COP10) and Notice 700/6 VAT rulings will remain in place for customers who are not covered by the new clearances process to provide guidance on how to seek information and advice from HMRC. These documents will be reviewed over the next year to provide more consistent guidance on the information and advice available to our customers.
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Articles

2. Death and taxes

Journal name: New Law Journal
Author: Julian Washington
Citation: 158 NLJ 681
Issue date: 9 May 2008
Summary: This article discusses the European Court of Human Rights (ECHR) decision in Burden v UK (App No 13378/05). Sybil and Joyce Burden, aged 82 and 90 respectively, are sisters, both unmarried, and live together in a family home near Marlborough, Wiltshire, which was built on a piece of land inherited from their parents. Every year since 1976 they have written to the chancellor of the exchequer before each budget about a tax problem and asked for the rules to be changed. The essence of their problem is that, unlike in the case of spouses, when there is generally complete exemption from inheritance tax on the first death, no such exemption will be available when one of the sisters dies. In all likelihood, this will cause the surviving sister to have to sell the house to fund the tax bill. As for many people, the greatest part of their wealth is in bricks and mortar; they do not have enough liquid assets to pay the tax when the first of them dies.
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3. Wills and ways

Journal name: Journal of the Law Society for Scotland
Author: Shona Lowe
Citation: (2008) 53 JLSS 4, 28
Issue date: 9 May 2008
Summary: This article surveys the arguments for and against a compulsory register of wills, an idea that continues to be discussed in official circles. Registration of wills during life is not a new idea, but it remains a topical one. If a system of registration is to be introduced in Scotland, much could perhaps be taken from English regulations. Draft legislation concerning the matter is expected from the European Commission later in 2008.
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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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