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Issue 31 – September 2008 

Cases

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Cases

1. Barnett v Semenyuk and another

Cite: [2008] All ER (D) 205 (Jul)
Court: Chancery Division
Judge: Peter Leaver QC sitting as a deputy judge of the High Court
Hearing Date: 10 July 2008
Representation: Laura John (instructed by Rosling King) for the claimant.The first defendant appeared in person.The second defendant did not appear and was not represented.
Summary: Inheritance Tax - Whether The Shares In A Company That Claimed Always To Have Been A Land Development Company Were Shares In A Company "Making Or Holding Investments" So As To Preclude Business Property Relief Under Section 105(3) Ihta 1984 - Substantial Amount Of Rent Received In Respect Of Properties That Had Been Let - Appeal Allowed.

In May 2000, the first defendant purchased a greenbelt agricultural field (the property) at auction. He paid £40,500 for the property. It was situated next to the claimant's family home. In February 2001, the first defendant applied for planning permission to build a four bedroom house on the property. In the application he described himself as the owner of the property.

That application was refused. In subsequent dealings with the planning authorities, the first defendant stated that 'he had used a legacy to buy the farm' and that he had intended to run a commercial truffle farm. In October 2004, the first defendant issued proceedings against the claimant by which he sought damages in respect of various alleged interferences with the property. In July 2005, the claim was struck out and the claimant was awarded damages and costs on his counterclaim. Those sums were to have been paid by 8 August. On 3 August, the first defendant transferred the property to the second defendant for a consideration of no monetary value. He had previously been in a relationship with the second defendant's mother.

The claimant applied for a charging order over the property and for an order that the first defendant attend court for questioning. A final charging order was subsequently made. In early 2006, the claimant became aware of the transfer of the property. The first defendant attended court to answer questions on 8 February 2006. He stated that he had been holding the land on trust for the second defendant and that the timing of the transfer had coincided with the second defendant's eighteenth birthday. He maintained that the property was to have been used to grow a special variety of mushroom which had been successful in treating the second defendant's epilepsy. Subsequently, the claimant issued the instant proceedings whereby he sought to have the transfer of the property set aside on the basis that it was a transaction at an undervalue within the meaning of s 423 of the Insolvency Act 1986.

The principal issue that fell to be determined was whether the real substantial purpose of the transfer had been to put assets beyond the reach of creditors. The first defendant submitted that the property had been purchased on trust with a legacy bequeathed by his Ukrainian father and adduced documents purporting to be a testamentary instrument and declaration of trust in support of his case.

The claim would be allowed.

On the evidence, the first defendant had failed to demonstrate that the documents purporting to be his late father's will and the associated declaration of trust were genuine and authentic documents. He was a highly dishonest and devious man. In those circumstances, the property had been owned by the first defendant alone at all material times, and the transfer to the second defendant for no monetary consideration satisfied the conditions for setting aside the transfer under s 423 of the 1986 Act.
 
 
2. Baynes v Hedger and others

Cite: [2008] All ER (D) 175 (Jul)
Court: Special Commissioners
Judge: Howard M Nowlan
Hearing Date: 14 July 2008
Representation: Thomas Dumont (instructed by Campbell Hooper LLP) for the claimant. Jeffrey Terry (instructed by Allan Janes LLP) for the third defendant. Emily Campbell (instructed by Sheridan & Co) for the fourth defendant
Summary:  Will - Family provision - Challenges by alleged dependant and former partner -  Consideration of relevant factors - Whether claimants establishing claim on facts - Inheritance (Provision for Family and Dependants) Act 1975.

The testatrix was a sculptress of considerable repute. She lived at Dunshay Manor in Dorset. She never married and had two children. She left a will dated 6 July 1977 as amended by two codicils. her testamentary dispositions included a legacy of £2,500 to her goddaughter, the claimant (H), small pecuniary legacies to other friends, a specific devise of the Dunshay Manor estate to the Landmark Trust, a bequest of her residuary estate to the claimant's mother, M for life, with the remainder to four of M's children 'but not H because she has already benefitted'. H and M made claims against the estate under the Inheritance (Family and Dependants) Act 1975, on the ground that the will did not make reasonable provision for them. H, who was in severe financial trouble, claimed that the testatrix had undertaken to assist her.

The court ruled: Authority established that the test as to whether two people were 'living together' in the same household was (i) whether the relationship was one which had been presented to the outside world openly and unequivocally so that society considered it to be of permanent intent; and (ii) whether the parties had a common life together, both domestically and externally. On the facts of the instant case, M and the testatrix had had a relationship, which might have amounted to civil partnership,but there was no question but that the two had different main residences.

That was the state of affairs that had prevailed since the late 1970s. It was not a temporary situation. There were two separate establishments and two separate domestic economies. M was not being maintained at the time of the testatrix's death. It followed that her claim failed. The testatrix had been generous to H during her lifetime but had made no firm commitment of any sort. H's financial plight was largely of her own making.

The claims would be dismissed.
 
3. Roberts v Gill & Co and another

Cite: [2008] All ER (D) 162 (Jul)
Court: Court of Appeal, Civil Division
Judge: Pill and Arden LJJ and Patten J
Hearing Date: 11 July 2008
Representation: Guy Adams (instructed by Chilcotts) for the claimantTom Dumont (instructed by Barlow Lyde & Gilbert) for the defendants.
Summary:  Solicitor - Negligence - Duty of care - Wills - Claimant's brother acting as administrator of testatrix's estate - Claimant's brother disposing of freehold property of estate contrary to wishes of testatrix - Claimant commencing proceedings against defendant firms of solicitors alleging negligence in administration of estate - Whether claimant permitted to continue action in representative capacity - Civil Procedure Rules 1998, SI 1998/3132, Pts 17, 19.

The testatrix died in July 1995. The claimant was named as a beneficiary in her will, as was his brother, JR. Clause 7 of the will provided that if on written demand from the testatrix's trustees, JR paid to the trustees such sum as should represent the amount of all estate or other duty payable upon or by reason of her death in respect of all her estate, the testatrix would give a piece of land, known as Coppice, to the claimant absolutely, and the remainder of her freehold property to JR absolutely.

Clause 8 of the will provided that if JR did not pay the sum specified in cl 7 of the will, cl 7 of the will should not take effect and in substitution, the freehold property described in cl 7 would be held upon the trusts declared in cl 9 of the will. Clause 9 of the will contained a gift of residue and provided for the payment of the claimant's death, funeral and testamentary expenses, and then for the residuary estate to be divided equally in three ways, to the claimant, the testatrix's daughter, and JR. The executors named in the will renounced their right to probate and JR was duly appointed administrator of the estate.

In July 1996, JR transferred property referred to in cl 7 of the will as trustee of the property to himself as beneficiary under the will. The property was subsequently sold to a third party. However, it appeared that a substantial sum remained due in respect of inheritance tax. JR subsequently disappeared. In 2002, the claimant commenced proceedings against the two defendant firms of solicitors which JR had instructed during his time as administrator of the estate. In the pleadings, the claimant alleged that the defendants owed him a direct duty of care and that they had been negligent in relation to the position in respect of inheritance tax and the administration of the will, and in relation to the title of land sold by JR.

The claimant subsequently applied for permission to continue the proceedings in a representative capacity. The court dismissed his application, holding that a beneficiary could sue on behalf of an estate only in 'special circumstances' and that no such circumstances existed in the instant case. The claimant appealed.

An issue arose in relation to determining the true nature of the claimant's application and the applicable rules under the Civil Procedure Rules 1998, SI 1998/3132 (the CPR). The claimant submitted, inter alia, that the application was simply to change the capacity in which he sued and that therefore the relevant rule was CPR 17.4(4). The defendants submitted, inter alia, that in substance the application was also one to add a new party.

The appeal would be dismissed.

While the CPR did not deal expressly with a derivative claim by the beneficiary of an estate, it did contain detailed provisions dealing with derivative actions brought by members of a company, body corporate or trade union. In those cases, CPR 19.9(3) specifically provided that the company, body corporate or trade union should be joined as a defendant. That did not mean that the company, body corporate or trade union would have to take an active part in the proceedings.

On the contrary, because the claimant was the driving force in the litigation, it would only be a nominal defendant. The principal reason for joinder was to bind those persons so there could be no further claim based on the same cause of action. There was no reason to distinguish that situation from the situation where a beneficiary under a will sought to bring a derivative claim. The personal representatives of the deceased would have to be joined.

In the instant case, the claimant's application to change the capacity in which he sued satisfied the requirements under CPR 17.4(4). However, he was also required to add the administrator of the estate as a defendant. That change in parties was occurring after the expiry of the relevant limitation period and in those circumstances the requirements of CPR 19.5 had to be satisfied. On the facts, those requirements had not been met. Accordingly, his application to continue the proceedings in a representative capacity had fallen to be dismissed.
 
4. Martin v Browne and another

Cite: [2008] All ER (D) 82 (Jul)
Court: Court of Appeal, Civil Division
Judge: Hearing Date: 7 July 2008
Representation: Sarah Richardson (instructed by Howard Cohen & Co) for the claimant.Justin Holmes (instructed by Gordons) for the defendants
Summary:  Will - Validity - Lost will - Defendants obtaining grant of probate of estate of late mother - Claimant seeking declaration that deceased's will was her last will and testament - Defendants claiming will destroyed by deceased - Judgement being entered in favour of claimant - Whether judge erring.

The defendants, who were brother and sister, obtained a grant of probate of the estate of their late mother, the deceased, on the basis that she had died intestate. The claimant, who was their half-brother, brought a probate action against them seeking a revocation of the grant to the defendants, and a declaration that a will which had been executed on behalf of the deceased by a firm of solicitors was her last will and testament. He also sought a grant of probate to his solicitor, B, who was the lawyer for the executor named in the will, and an employee of the same firm that had executed the will on behalf of the deceased.

The defendants contended that they had seen the deceased tear up the will. The issue was whether the deceased had destroyed her will. The claimant applied for summary judgment on the basis that the deceased had only executed one copy of the will, which had been, at the material times, in the possession of the firm of solicitors. Consequently, he contended, the deceased could not have destroyed it in the presence of the defendants as alleged.

The defendants contended that the deceased had revoked the will and that, as she had torn up the original will, the one alleged to be in possession of the firm of solicitors had to be in duplicate form. B gave evidence that she had never arranged to duplicate wills in her career. The judge found that the defendants had failed to show that the will had been produced in duplicate form and he entered judgment in favour of the claimant. The defendants appealed against that decision.

They contended, inter alia, that the judge had erred in refusing to accept the possibility that their evidence had been right and that he had wrongly ordered summary judgment in favour of the claimant.

The appeal would be dismissed.

On the evidence in the instant case, the judge had been right to find that there was no real prospect of the defendants establishing that the deceased had torn up the will. The evidence showed that B had prepared the will and that she had not prepared it in duplicate. In those circumstances, the judge had been right to find that the prospects that there was a duplicate which fanciful and not real.
 
5. Olins v Walters

Cite: [2008] All ER (D) 82 (Jul)
Court: Court of Appeal, Civil Division
Judge: Mummery, Dyson and Maurice Kay LJJ
Hearing Date: 4 July 2008
Representation: Michael Driscoll QC and Mark Blackett-Ord (instructed by IBB) for the claimant.Alan Steinfeld QC and Mark Warwick (instructed by Nabarro) for the defendant.
Summary:  Will - Mutual will - Requirements for enforceable mutual wills - Defendant and deceased wife executing wills and codicil in near identical terms - Clause in codicil referring to 'mutual testamentary disposition' - Claimant solicitor and grandson commencing proceedings to have will and codicil proved in solemn form - Judge finding that will and codicil validly executed and to take effect as valid and effective mutual wills - Whether judge erring.

The claimant was a solicitor and the grandson of the defendant, who relied upon him for legal advice. On 11 March 1988, the defendant and his wife, the deceased, executed wills in almost identical terms, replacing wills made by them in 1953. After a settled legacy each left the other their entire residuary estate absolutely subject to surviving by 30 days. They subsequently made codicils in similar terms.

In the event that the defendant failed to survive the deceased, the residue was to have been divided into three equal shares - one each for their two daughters and one for their grandchildren. A meeting took place on 21 February 1998, where the defendant and the deceased executed enduring powers of attorney drafted by the claimant. The claimant's brother attended that meeting. On 18 May, a codicil was apparently executed by the deceased. Clause 2 of the codicil provided: 'This codicil is made pursuant to an agreement made between my husband and me for the disposal of our property in a similar way by mutual testamentary disposition'.

A mirror codicil was apparently executed by the defendant. The papers relating to the codicil were prepared by the claimant. On 31 March 1998, he sent them to the deceased and the defendant under cover of a letter explaining the effect of cl 2 and confirming that the codicils had been drafted to reflect their instructions. In 2006, the  deceased died. Subsequently, a dispute arose between the parties in relation to the nature and effect of the testamentary instruments.

The claimant produced the codicils and contended that there was a mutual wills agreement. The defendant said that he had no recollection of the meeting on 21 February 1998, or of the codicils or of the agreement referred to in cl 2 of the codicils. The claimant commenced proceedings to have the deceased's 1998 will and the 1998 codicil proved in solemn form, and for a declaration that the deceased's codicil took effect as a valid and effective mutual will.

The defendant conceded that if there was a valid contract for mutual wills, the doctrine operated by imposing a constructive trust on him as the survivor, because the deceased had performed her promise to leave her estate to him. Evidence was given by, inter alia, the claimant and the defendant. The claimant stated that a discussion had taken place between himself and the defendant in which he had said that the defendant and the deceased could make an arrangement referred to in their wills which could not be changed after one of them died. The judge found that that discussion led to an agreement between the defendant and the deceased. He found, inter alia, that the deceased's 1998 will and the 1998 codicil were validly executed; and that the codicils executed by the defendant and the deceased on 18 May 1998, were to take effect 'as valid and effective mutual wills so as to bind the deceased's estate'. The defendant appealed against that decision.

He submitted that the judge had wrongly granted a declaration as to the existence of mutual wills binding the deceased's estate in the hands of the defendant without determining with sufficient particularity the terms of the contract; and that the evidence of a mutual wills contract was not as clear and satisfactory as authority required, and that the judge should have concluded that no such contract had ever been made.

The appeal would be dismissed.

Possible legal consequences of the application of the equitable principles did not negative the existence of the foundation contract or prevent a constructive trust from arising by operation of law on the death of the deceased.

The judge had been fully entitled to find that, on the balance of probabilities, the defendant and the deceased had made a contract of the kind described by the claimant. There was no evidence against the claimant's account other than that neither the defendant nor the claimant's brother could recollect the discussion or agreement.

There was ample evidence to entitle the judge to find as a fact that the defendant and the deceased had made the contract referred to in cl 2 of their codicils and in the circumstances described by the claimant. The intentions of the defendant and the deceased were sufficiently expressed in the contract to lay the foundations for the equitable obligations that bound the conscience of the defendant, as the survivor, in relation to the deceased's estate.

The judge had found all that he needed to find in order to hold that mutual wills existed. The trust was immediately binding on the defendant in relation to the deceased's property left to him on the basis of the contract. It was not postponed to take effect only after the death of the defendant when the property came into the hands of his personal representatives. In all the circumstances, the judge had determined the issues against the defendant for sound reasons.

6. Suzanne and Peter Taylor V Revenue and Customs Commissioners

Cite: SPC 704
Court: Special Commissioners
Judge: Nuala Brice
Hearing Date: 5 August 2008
Representation: Suzanne Taylor; Colin Ryder
Summary:  Inheritance tax – Death - Estate passing on death - Deposit accounts in joint names of deceased and appellant - Whether deceased held accounts as trustee - Whether deceased had general power to dispose of whole property.

The deceased lived with K in London. She had no children but she had a sister, M, who married P and had two daughters, S and PT. The daughters both married and had five children ("the grandchildren"). While he was alive K made it clear that he wanted the grandchildren to benefit when he died. K died in July 1996 and left all his real and personal property, including two building society accounts, to the deceased absolutely and appointed her to be the sole executrix of his will. Before her death on 27 December 2004 the deceased put the two building society accounts into the joint names of herself and P.

The operating instructions for both the accounts were that any one signature was required and that, on a death, the whole account would pass to the survivor. Tax deduction certificates were issued to the deceased and P showing her as the first named account holder and P as a joint investor/beneficiary. Between May 1998 and April 2003 nine withdrawals were made from the accounts, mainly by the deceased. It was widely known within the family at that time that the monies in the building society accounts would at some point be for the benefit of the grandchildren. Under her will the deceased left all her property on trust for sale for the benefit of S and PT absolutely.

At the time of her death the amounts in the accounts were £54,284.64 and £1,092.98 respectively. No inheritance tax was paid on those amounts. On 31 December 2004 P closed both accounts using the money therein to pay the deceased's debts and funeral expenses and £15,000 was given to S and PT for the benefit of their children and £3,000 was given to PT's eldest son. In December 2005 S wrote to HMRC asserting that K had wanted P to have his savings and had informed the deceased accordingly, and that P had agreed that the building society accounts should be in the joint names of himself and the deceased so that she would have access to the money at any time, although it belonged to him.

On 18 June 2007 HMRC issued two notices of determination to P and S, the sole executrix of the deceased's will, which stated (1) the deceased was to be treated as beneficially entitled to the whole money in the joint accounts at the date of death; or, alternatively, (2) having regard to the provisions of FA 1986 s 102(1), (2) and (3), the disposal was a gift of property subject to a reservation and was deemed to be property to which the deceased was beneficially entitled immediately before her death. P and S appealed contending the monies in the two building society accounts belonged to P who had the power at any time to enjoy the monies or to withdraw them and close the accounts. HMRC argued (a) that the deceased had not held the accounts as trustee; (b) that as she had had a general power which enabled her to dispose of the whole of the accounts within the meaning of IHTA 1984 s 5(2) she was to be treated as beneficially entitled to the whole of the accounts; or, alternatively, (c) that if she had disposed of the whole accounts by way of gift to P, the accounts had not been enjoyed by P to the entire exclusion of her, and for that reason also the accounts were property to which the deceased was beneficially entitled immediately before her death.

The Special Commissioner found that the deceased did not hold the accounts as trustee. On the facts K left all his property to the deceased absolutely and there was no evidence of the establishment of any formal trust in favour of P. Nor was there any evidence that K had established a secret trust under which the deceased was to act as trustee for P, and had given K an undertaking that the accounts would be applied for the benefit of P or, at least, that there was an understanding to that effect between her and K.

The evidence was that, while he was alive, K expressed the view that he wanted the children and grandchildren of M and P to benefit when he died. There was nothing more certain than that. There was certainly no evidence that P was to benefit from the accounts. It was also relevant that after K's death and before her own death, the deceased did not apply all the money in the accounts for the benefit of the children or grandchildren, and at that time P did not benefit from the accounts. After the deceased's death the accounts were used partly to pay her debts and funeral expenses and partly to benefit the grandchildren.

Thus the evidence did not support the assertions made in the letter of 2 December 2005 that M had wanted P to have his savings and had informed the deceased of that. Furthermore whilst there may have been some moral obligation, there was nothing amounting to a legally enforceable duty on the deceased to use the accounts to benefit the grandchildren.

The Special Commissioner found that the deceased had a general power which enabled her to dispose of the whole of the accounts within the meaning of IHTA 1984 s 5(2). The present case was not a case where the deceased retained ownership of the funds and P could have withdrawn money when he wished for the following reasons: the operating instructions were that any one signature was required and that on a death the whole of the accounts would pass to the survivor; the income tax deduction certificates were sent to both accounts holders; and, before her death, most withdrawals were made by the deceased.

Neither was the present case where the deceased and P owned separate shares as tenants in common as it was clear that, if P had died first, the whole of the accounts would have belonged to the deceased. On the facts it was a joint account held as joint tenants beneficially. It was also clear that the deceased was able to dispose of the whole balance for the time being in the accounts. It followed that she was to be treated as beneficially entitled to the whole of the money in the accounts at the date of her death. It followed that the appeal would be dismissed.

Appeal dismissed.

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Features

1. Storing IT relief

Companies offering self-storage are being touted as the latest Inheritance Tax (IHT) saving scheme. A promoter of such a scheme has said: 'Self-storage is a growing industry in the UK and investors will have seen the many self-storage sites opening up all over the country, as individuals accumulate increasing numbers of belongings, which they need to store'. Jon Golding of Golding Taxation Services explains why such shares held as investments can beneficially affect IHT because "a 100 per cent exemption from IHT can be obtained for gifts of such shares during lifetime or when held on death where these come within the definition of unquoted and are deemed to attract Business Property Relief (BPR):

“Where certain conditions are satisfied, relief from inheritance tax is available on the transfer of ‘relevant business property’ and this includes shares quoted on AIM, PLUS/ofex and NASDAQ Europe. The relief is a percentage reduction in the value transferred by the transfer of value. It should be noted that unlike agricultural property relief there is no territorial limitation on undertakings entitled to business property relief and therefore can include business situated worldwide. Currently many people are benefiting from IHT planning by investing in AIM shares and this attracts Business Property Relief (BPR) of 100 per cent. BPR is available under what is section 105(1)(bb) of the Inheritance Tax Act 1984 in respect of “any unquoted shares in a company”.

Originally this was introduced as a relief from IHT for investments in high risk start up ventures that needed capital investment and the incentive was relief from IHT. However, many advisers are now seeing the opportunities for their clients investing in companies listed on the AIM and thereby attracting 100 per cent BPR after only two years. From 6 April 1996 100 per cent relief is extended to all qualifying unquoted shareholdings but do not qualify if the business (or the business of the company) consists wholly or mainly of dealing in securities, stock or shares, land or buildings or making or holding investments.

The trend of investment in AIM shares has been upward since the mid-1990s with larger market capitalisations. However, any investment in AIM shares would advisably be part of a general investment strategy rather than driven by a desire to save IHT. Jon Golding suggests that “…such areas of investment opportunity may in the future be reduced or curtailed because if the investment is recategorised as consisting wholly or mainly of dealing in land or buildings. The IHT relief may have been legitimately used as a tax planning opportunity but may soon be perceived by the Revenue as merely an IHT avoidance ploy. Advisers and investors may now have to review future IHT planning very carefully before proceeding to ensure their IHT relief is secure.”

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Articles 
 
1. Joint account

Journal Name: Taxation
Author: Mike Truman
Citation: Taxation, 3 July 2008, 17
Issue Date: 3 July 2008
Summary: Looks at the new guidance for HMRC staff on applying the new rules for transfer of the nil rate band. The general rule is that the personal representatives have two years from the end of the month of the second death or three months from first acting as such whichever is the later. HMRC do have discretion to extend the time limits, and it appears that the most likely situations for doing so will be where the personal representatives were in dispute, or the person who would have lodged the claim was prevented from doing so by something outside their control.
 
2. Widow's pension and gender equality: Runkee V United Kingdom
Journal Name: Journal of Social Security Law
Author: Mel Cousins
Citation: (2008) 15 JSSL 90
Issue Date: 1 July 2008
Summary: Examines the recent decision of the European Court of Human Rights on the compatibility of UK law on survivors’ benefits with the Convention on Human Rights. While the outcome of the case may be somewhat unsurprising, the Court’s reluctance to engage seriously with the issues and to explain why the UK approach was acceptable is disappointing. In the social security area, the Court would appear to be prepared to uphold not only indirect gender discrimination and direct discrimination in “new” policy areas, but also long-standing gender discrimination if the state concerned can show that it is not too far out of line with national and international developments.

3. Business inheritance
Journal Name: Journal of Social Security Law
Author: Mel Cousins
Citation: (2008) 15 JSSL 90
Issue Date: 1 July 2008
Summary: Examines the recent decision of the European Court of Human Rights on the compatibility of UK law on survivors’ benefits with the Convention on Human Rights. While the outcome of the case may be somewhat unsurprising, the Court’s reluctance to engage seriously with the issues and to explain why the UK approach was acceptable is disappointing. In the social security area, the Court would appear to be prepared to uphold not only indirect gender discrimination and direct discrimination in “new” policy areas, but also long-standing gender discrimination if the state concerned can show that it is not too far out of line with national and international developments.

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