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Issue 32 – October 2008  

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Events

CASES

1. Brenda Constance Tapp v Colin Ryder

Cite: TMA/284/2008
Court: Lands Tribunal
Judge: P R Francis
Hearing Date: 5 September 208
Summary: Inheritance Tax – Valuation of dwelling house – Comparables – Freehold value determined at £230,000 – Inheritance Tax Act 1984, section 160

The subject property comprised a 1930s built two-storey semi-detached house located on a large residential estate of broadly similar properties, lying to the north east of Bexleyheath town centre, and within walking distance of Barnehurst station. The property, which had a gross external floor area of 107 sq m (1,152 sq ft) was of traditional rendered brick construction under clay tiled roofs and is the right-hand unit of a pair situated on the east side of Hillingdon Road. The accommodation, at the date of death, comprised at ground floor a part glazed entrance lobby, hall, cloakroom, two reception rooms, kitchen and a glazed utility room extension. At first floor there were three bedrooms and a shower room/wc. Externally, there was a small, lawned, front garden with driveway leading to attached single garage. Enclosed garden to rear. All mains services were connected, and there was a newly installed gas fired central heating system to radiators.

The deceased owned the freehold interest in the property, which he occupied, until a point some months before his death, and there were no lettings or statutory tenancies in existence at the relevant date.
 
The sole issue in this appeal was the determination of the value, as defined by section 160 of the Act, of the subject property as at the date of death, 6 April 2006.
Appellant”s case

Mrs Tapp said that the property had been purchased by the deceased, who was her uncle, as a home for himself and his parents in 1974. They pre-deceased him, and from 1999 until his hospitalisation at the age of 83 in December 2005, he lived alone in the house. It was at that time that Mr and Mrs Tapp visited the property and they were extremely concerned at what they found. Apart from minor redecoration to just one room, and the installation of double-glazing to the doors and windows, it was apparent that little if any maintenance had been undertaken since 1974.

The whole house was filthy; particularly the bathroom and kitchen, and only two of the six electric night storage heaters were operational. There were plumbing leaks and the wc was not properly operational, much of the wiring was defective, illegal and in a dangerous state and the banisters to the staircase were loose and dangerous. Furthermore, there were illegal polystyrene ceiling tiles, paper was hanging off the walls and there was considerable dampness and mildew which, along with "an all pervading" stench of urine forced Mr and Mrs Tapp to the conclusion that not only would Social Services consider the house unsuitable for Mr Atkinson’s return, but in its then state, it would be virtually unsaleable. In their view, only a speculator would be likely to be interested, at a value they thought to be in the region of £150,000. 

Because, at that time, it was anticipated that Mr Atkinson would return, a decision was taken to arrange for essential repairs and basic modernisation to be undertaken as a matter of urgency. The local firm of R Lintorn and Sons was appointed in January 2006 to strip out and completely refurbish the bathroom, and subsequent quotes were accepted to carry out complete rewiring and plumbing to include a new gas fired central heating system, the installation of a new kitchen and a ground floor under-stairs cloakroom together with removal of the polystyrene ceiling tiles, making good and redecoration throughout. By the time Mr Atkinson died on 4 April 2006 the works were underway, but few of the quoted for projects had been completed. A total of £14,973 had been paid to the contractor, £7,500 from Mr Atkinson, and the balance from Mr & Mrs Tapp.

Mrs Tapp said that the contractor was instructed to continue with the works, and they progressed until June, with a final payment being made to Lintorn on the 24th of that month. However, she explained that even by then the works had not been completed – in particular the new kitchen, elements of the electrics and the downstairs cloakroom. The redecoration was also still to be done.

By this time, they had become thoroughly disillusioned with managing the project, and obtained indications of value for the property in its then unfinished condition from two local estate agents.
The estimates were in the range £210,000 to £220,000, a significant increase on their earlier estimate of "speculator" value, thus reflecting the works that had been done to date, and the fact that the property was now likely to be of interest to a handyman who could complete the outstanding works. However, Mr & Mrs Tapp decided to persevere, and between June and October 2006 arranged for all the remaining outstanding works to be completed, together with attention to some additional works such as repair and replacement of rainwater goods, replacement of two doors, boxing in pipe work and the provision of new, good quality carpets and floor coverings. Thus, by the end of October, the house was fully modernised, repaired and redecorated, and was "ready to move into."

On 2 November 2006, Haart Estate Agents inspected the property and recommended it be put on the market at £269,995. Particulars were prepared and distributed, and on 4 November and offer was received, and accepted, in the sum of £267,000. In the appellant’s view, based upon the price achieved once the house had been fully restored, the estimates of value received in June when the works were only partially completed, and their own opinion of value in its totally unmodernised state in December 2005 of £150,000, they assessed the value at the date of death, with the assistance of a plotted graph, at £195,000.

In respect of Harks "offer" to agree the value at £230,000, based upon the opinion of a Mr Coll, the District Valuer, in a letter of 25 September 2006 before the determination was formally made, Mrs Tapp said that that opinion was worthless. Mr Coll had said that "judging from the sales of other similar houses (and taking into consideration the repairs that had been effected to 4 April 2006) the value of the house would have been in the region of £230,000 to £250,000 [...] and sought agreement to the lower figure.

No comparables had been identified or specifically referred to and, most importantly of all, there was no way that Mr Coll could have known a) precisely what works had and had not been carried out to the subject property by 4 April and b) what the condition was of any of the comparables he might have considered, in comparison. Despite a challenge to this assessment and a number of requests for information, Mrs Tapp said that no response had been forthcoming. Latterly, another District Valuer, a Mr Shryane, became involved but matters did not progress happily. Mr Shryane had not seen the property until the works had been completed, and had not inspected it internally, despite knowing it to be in the hands of an agent who had the key. There was no way, Mrs Tapp said, that he could have known what still needed to be done in April.

Turning to Ms Cavil’s expert witness report, Mrs Tapp said that, putting aside the question of the propriety of her visit to the subject property in April 2008, and what appeared to be a discourtesy in not advising her that this was being done, it could have been of little assistance to her in producing a valuation at 4 April 2006. She could not have known how much work had been done between the date of death and the time it was sold, and had made unsupported assumptions that it had been given "a basic clean up and redecoration". The fact that in November 2006 it had a brand new kitchen, bathroom and cloakroom together with a new central heating system and had been fully redecorated so that it was ready for immediate occupation did not seem to have been taken into account. It appeared, Mrs Tapp said, that Ms Colvill had simply adjusted the sale price back, for inflation, to April 2006 to give her opinion of its value at that date, and that was clearly wrong.

Respondent’s case
Ms Colvill is a chartered surveyor with 17 years experience in the Bromley Valuation Office (formerly the District Valour’s Office). She said that she made an internal inspection of the subject property, with permission of the new owners, on 2 April 2008, and confirmed that it had not been inspected by any member of the Valuation Office Agency in 2006. During her inspection, Ms Colvill said, the new owners advised her that the only works that they had undertaken since they bought the house were the installation of new uPVC double-glazed patio doors at the rear of the dining room, and replacement of the shower cubicle at first floor with a conventional bath.

Being aware that the works that had been described by the appellant were put in hand in January 2006, she said she had assumed that, as at the date of death, the property was "in reasonable order with no major defects." She said she had assumed that the house had been rewired and had new central heating, uPVC double glazed windows, new kitchen and a new bathroom. However, she also noted that further works were carried out after the date of death to prepare the property for sale, but said "unfortunately I have no information as to the exact nature of these works." She went on to say that her inspection revealed the kitchen and bathroom fittings to be of a basic, utility standard, as were the floor coverings. It was also noted that walls had had lining paper applied rather than being re-plastered.

In arriving at her valuation, Ms Colvill said she considered a total of five transactions (including the sale of the subject property in November 2006) that took place in Hillingdon Road and Westfield Road on the same estate, between December 2005 and December 2006. She then made adjustments to reflect any differences in size (two of them having been extended to 5 bedrooms and two having smaller gardens) and to allow for the growth in the market, as defined in the Land Registry Index for semi-detached houses in Bexley. A schedule demonstrating the indicative value for the subject property based upon the analysis and adjustments was produced in her report, along with a graph plotted over the one-year period based upon the Land registry Index. This produced a value for the subject property of £258,071 at 4 April 2006 upon the assumption that it had been "substantially refurbished to a modern standard" by that date.

14. In the knowledge that additional works had been undertaken to prepare the property for sale (although, she said, no evidence or invoices had been produced to show exactly what had been done since April), she deducted £3,000 to reflect this. This produced a true comparative value of £255,000, which she then rounded to £250,000.

Conclusions
The Judge said: 15. “I am entirely satisfied that Ms Cavil’s approach was thorough and well considered. The exercise that she undertook to analyse and adjust comparable sales to arrive at a value for the subject property was precisely in line with what is required of a chartered surveyor (in accordance with the RICS Practice Statement: Surveyors Acting as Expert Witnesses). However, it seems to me, the problem is the fact that not only had she not seen the property until some 2 years after the relevant date, and almost 18 months after it had been sold, but she was also clearly unaware of precisely how far the modernisation, repair and improvement works had got at that time. It is unfortunate that the appellant’s evidence is not entirely clear on this aspect, and I accept Miss Cavil’s criticism of the fact that no documentary evidence was produced to verify precisely what works remained unfinished when Lintorns were finally paid off in June 2006, with no estimates or invoices forthcoming in connection with completion of the outstanding works, or the additional works referred to.

It is clear that, at the date of death, Lintorns were only about halfway through what they were engaged to do (between February and June 2006), and I accept that the refurbishment was almost certainly much less advanced than had been assumed by Ms Colvill. Nevertheless, not only has Ms Colville effectively reduced her opinion of value by £8,000 from the analysis of £258,000 to £250,000, but also that is not the figure that was in Harks determination. That determination was in the sum of £230,000 which is some £20,000 less than Ms Cavil’s valuation, or £28,000 less than the figure she arrived at by pure analysis.

Therefore, whilst I am satisfied that the property was in a far less advanced state of modernisation in April 2006 than Ms Colvill thought, in my judgment the effective discount of £28,000 – or almost 10 per cent of the price eventually agreed rule would more than adequately reflect what works were still outstanding, and the effect they would have upon the price a purchaser would be prepared to pay.

As to the appellant’s argument for a valuation of £195,000, it is in my view flawed in that it was derived from a graph that had as its starting point an assumed value in December 2005 of £150,000, plotted through estate agents” marketing assessments (rather than actual sales evidence) in June 2006 to the price eventually achieved in November 2006. No evidence was produced to support the "speculator" value of £150,000, and this appears to have been nothing more than the appellant’s own opinion. It does seem to me that a figure of £230,000 against a value which, according to Ms Cavil’s analyses would have been £258,000 assuming it to be in the condition it was actually in when sold, is far more realistic than that propounded by the appellant – which was some £63,000 less than the achieved price, even despite price inflation.

There was no dispute that, at the relevant date, the property market was extremely buoyant, and I think it inconceivable that the best price that could be achieved when there was, according to the appellant, realistically no more than a maximum of £15,000 worth of work outstanding could possibly be so much less than what its full value would have been. I therefore conclude that the appellant has failed to prove that Harks determination was wrong, and confirm the value of the subject property at 4 April 2006 at £230,000.

Finally, in her submission, the appellant asked me to consider ordering a tax rebate of 40 per cent of the difference between the gross valuation figure of £195,000 assuming I find in her favour (and the figure upon which inheritance tax has, so far, been paid), and the net figure after the deduction of estate agents and conveyancing fees. The grounds were that, if the property were actually being sold for that sum, on the agreed valuation date, the net figure is the sum that the vendor would actually receive. Whilst on the face of it this seems an interesting point, it is not within the Lands Tribunal’s jurisdiction to make such an order.

Under section 160 of the Act, the "value" upon which tax is to be paid is to be determined as "the price which the property might reasonably be expected to fetch if sold in the open market at that time [...] " and both by convention, and in accordance with the principles detailed in the RICS Appraisal and Valuation Manual (the Red Book), that is the price that a purchaser would pay; it is the figure that would appear in the Land Registry records, and does not make any allowance for deductions, compulsory or otherwise. It is that figure upon which taxable liability is assessed under the Act. As a corollary, it seems to me, it would not be correct for a value to be determined that, for instance, took into account the amount of stamp duty that a purchaser would have to pay on the agreed price.

The basis of the price to be determined is further supported by the decision in Duke of Buccleuch v Inland Revenue Commissioners [1967] 1 AC 506 where Lord Reid stated, in connection with the Estate Duty equivalent of section 160 of the 1984 Act, at 525B: "the [1894] Finance Act permits no deduction from the price fetched of the expenses involved in the sale."
 
The matter having been determined without a hearing under Rule 27, I make no award of costs, and this decision is therefore final.” 
 
2. Taylor and another 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 – IHTA 1984, section 5(2)

The deceased lived with K in London. She had no children but she had a sister, M, who married P and had two daughters, section 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 section and part 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 section and part for the benefit of their children and £3,000 was given to PT's eldest son. In December 2005 section 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 section 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 section 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 section 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 section 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.

Features

1. Lawyers see increase in will disputes and trustee negligence claims – part one

Law firm Wedlake Bell has been surprised at the big increase in will disputes it has seen in the last four years.

"We didn’t really expect this," says Fay Copeland, head of the firm’s contentious trusts and probate team. Numbers are also impossible to give—as many disputes are settled rather than going to court. But Wedlake Bell is far more often being asked now to go back to examine the way a will was written and to raise queries about how it was drafted.

Copeland gives two main reasons why this surge in disputes is occurring—rising asset prices and a growth in complicated family structures (as more people have second families and different sets of children). On asset prices, she says simply: "Something that wasn’t worth fighting over before has now become a big deal."

Even after recent house price falls, house prices now average £177,000 (according to the Halifax), up 145 per cent on 1998 when they averaged £72,000. The FTSE-100 is up about 29 per cent on where it was five years ago (although it is up only 15 per cent compared to 1998).

The Wedlake Bell team is also seeing more disputes being started by ex-spouses or children of an earlier marriage who may feel that the structure of the will overall is not fair. Also common is a situation where one child in particular may feel badly done by. The firm recently advised a client who was one of five siblings and who received the same inheritance as the others despite the fact that she had nursed her mother during her final illness. In other cases, the firm has seen one child excluded—not even because that child was less favoured by the parents but because that child was seen to be better off financially and less in need of help. The firm advises clients that the principle of fairness is not one that parents and other people drawing up their wills need to take into account—but, nevertheless, some people will still pursue some kind of claim.
 
"Starting a dispute is sometimes just a way of getting back at the family," says Copeland. It could also be that various consumer complaints schemes—such as those run under the Financial Ombudsman Service or the Banking Code—have given the public an expectation of fairness in dealings with institutions which they, mistakenly, feel should also apply to the way their parents draw up their wills.

Wedlake Bell advises clients to talk through difficult issues in wills with their children and other beneficiaries—especially in instances where the parents plan to give one child less than the others. "It is better to talk this through in the lifetime of the person making the will but, sadly, that very often does not happen," says Copeland.

The firm is also seeing a growth in negligence claims against trustees which we will examine in a follow-up to this article.

2. Lawyers see increase in will disputes and trustee negligence claims — part two

Negligence claims against trustees are on the rise and likely to continue going up.

Paul Hewitt, partner at Withers, and Fay Copeland, partner at Wedlake Bell, are both very clear that disputes between beneficiaries and trustees are on the increase. "There are more enquiries about claims against trustees," says Hewitt. "Whenever there is a downturn in the market and investments lose their lustre, people quite often want to point the finger and blame someone else. If trustees can’t show that they have complied with their obligations to review investments, and the trust has performed badly, they are open to a claim."

Copeland is seeing this kind of claim being made when relations between beneficiaries and trustees have already deteriorated. "Quite often there is a breakdown in communications," she says, describing a fairly common pattern in which a trustee will decide not to listen to the complaints or requests made by beneficiaries who then finally decide to threaten litigation. If a formal complaint is made, it will often contain two allegations—that the trustee did not exercise his or her discretion properly and that the assets were not properly managed. There can be added problems if the trustee has a direct financial interest in some of the assets.

Particular problems emerge with small trusts—where trustees might pay more than the annual income the trust would receive if they went to outsiders and had to pay for professional financial advice. In these circumstances, Copeland suggests that the trustees should ask themselves various questions: "Does it still warrant having a trust? Is the purpose of the trust still there? Could it be better served by giving the assets away to the beneficiaries?"

Although most of these disputes end up being settled, Paul Hewitt warns professional trustees that they are particularly exposed to possible claims. "Case law and then the Trustee Act 2000 made it explicit that a professional trustee has a higher standard to meet than a lay person. Often there is scope to give a lay person a get out clause in law, provided that they can show that they have been honest and did not do anything that was plainly wrong."

But most trustees, lay or professional, will want to take regular professional advice on the investment of the trust fund assets. "Even if the trust fund has only £50,000 in it, trustees still have some obligations to review the investments—even if it is more difficult to justify significant professional fees," says Hewitt. Being cautious with trust fund assets will not always be seen as a virtue. Taking an apparently safe option like holding assets in cash could leave a trustee open to a claim, says Copeland. She adds: "Executors of wills could also be held liable if they have unnecessarily and excessively delayed key asset management decisions, such as selling property, and are forced to sell in a market slump."

Even solicitors acting as trustees have made major blunders, says Hewitt. He recalls a case of a solicitor-trustee who had not read the will properly, and gave away capital to a life tenant. Some trustees miss crucial tax deadlines (and risk negligence suits that way). One important deadline of this type is coming up on 5 October 2008 when a tougher tax regime will come into place for certain kinds of accumulation and maintenance and life interest trusts unless particular steps are taken by the trustees, follow tax changes announced in the 2006 Budget. "There will be a significant number of claims that arise out of this," says Hewitt.

3. Law on intestacy has not kept up the pace

Spouses and civil partners will receive more money when their loved ones die intestate as of 1 February 2009.

The statutory legacy—the lump sum paid to a spouse or civil partner from the estate of a person who dies without making a valid will—was last changed in 1993. It is currently set at £125,000 where the deceased leaves a spouse or civil partner and children, and £200,000 where the deceased leaves a spouse or civil partner but no children. If the estate is worth more than the statutory legacy then the remainder is divided up between the spouse and the children, parents and siblings.
However, these levels were thought by many to be too low, and left the spouse or civil partner vulnerable since the rise in property prices meant their homes would often be valued higher than the statutory legacy level.

The levels are due to increase to £250,000 and £450,000 on 1 February 2009, Justice Minister Bridget Prentice announced on 28 August 2008.

Norwich-based tax consultant Toby Harris, a member of the Society of Trust and Estate Practitioner’s technical committee, says the law on intestacy has not kept pace with time, and was devised "in the early twentieth century and is meant to reflect what happened at that time. Intestacy law hasn’t got to grips with such things as cohabitation and half-siblings".

He says the levels were previously too low. "The money is usually not in a bank account but is tied up in other assets such as property, so you would sometimes have a situation where you would sell the house over the widow’s head to pay the children—if we refer to the traditional example where the wife outlives the husband. The fact she only got £125,000 outright would put her in difficulty and cause cash flow problems.

"Raising the limit to £250,000 is going to help a lot. Outside London, that goes a long way and will mean that at least she has a roof over her head. I think they’ve probably got the level about right. It offers substantial protection where most needed. A lot of houses are held in joint names anyway. Where this will help is where an ill-advised lady not of a forceful disposition marries an alpha male who then doesn’t put her name on the title deeds. People need to make sure of their rights." Harris backed the government’s calls for more people to make wills.

"I would urge everyone to make a will, and to go to specialists for advice—they don’t necessarily have to be solicitors, but they should be professionals who know what they’re talking about."
According to the Ministry of Justice consultation, “Administration of Estates—Review of the Statutory Legacy”, published 7 June 2008, there are annually up to about 9,000 estates where the statutory legacy prevents the surviving spouse from receiving the whole estate, including about 4,000 cases where the surviving spouse is at risk of losing their home. The consultation paper originally envisaged raising the levels to £350,000 and £650,000.

4. Residence and domicile update is required

By March 2009, HM Revenue & Customs plans to have updated its guidance notes, IR20, on the definitions of residence and domicile, and tax specialists generally welcome the step. "Residence is an absolutely key issue as to determining your liability to tax in the UK," says Alex Henderson, tax partner at accountant PricewaterhouseCoopers. "It’s pretty much the most fundamental issue."
However, experts such as Henderson believe the UK needs to catch up with some other countries by updating the definitions and making them less opaque and more user-friendly. "The Auk’s residence tests need to be in line with those from other countries," he says. "In the US, it is much clearer if you are resident or not."

The HMRC guidance in booklet IR20, “Residents and non-residents liability to tax in the United Kingdom”, is, according to Henderson, "a codification of some very old case law, some of which goes back over 100 years. The rules were developed at a time when people travelled by ocean liner, and they haven’t really kept up with modern living".

One change that has come through—and which was spelled out in an update of IR20 earlier this year—is a change to the rules about whether dates of arrival and departure count when calculating how many days someone is in the UK. It used to be that arrival and departure dates were excluded. Now, under changes brought in through the Finance Act 2008, a day will be included if someone is in the country at 12 midnight—meaning, in effect, that arrival days will be counted but departure days will be excluded.

For people who come to live in the UK, their residence situation can be straightforward if they do not travel abroad for long or repeated periods. IR20 explains the basic rule by stating: "You will always be resident if you are here for 183 days or more in the tax year. There are no exceptions to this." But people can still be resident if they are in the UK for much less than this and some people can be resident in the UK and another country at the same time.

The Uses simpler system could be one that the UK could take as a model if it does decide to review the law. It averages time spent in the US over a number of years—rather than having numerous different rules and concepts as in the UK. The IR20 booklet currently runs to 39 pages.
There are two groups of people who are particularly affected by these issues, says Henderson—expatriate employees of multi-national organisations and private individuals. There has been a growth of people working abroad and far more individuals who commute between two different countries.

Henderson’s colleague Sean Drury, international mobility partner, comments: "Businesses are having to think increasingly creatively about how they deploy their global workforce. Moving employees in and out of the UK can be hugely challenging so companies can only benefit from practical clarification that helps unravel the complexities of this process."

HMRC wants comments on the form of its guidance by 15 December.

If you have any comments about this or any other news item or feature, please respond via e-mail to: news@lexisnexis.co.uk  The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Articles

1. Testamentary promises

Journal Name: Solicitors Journal
Author: Mark Pawlowski
Citation: 152 SJ 33, 23
Issue Date: 19 August 2008
Summary: Reports the recent Court of Appeal ruling in Thorner v Curtis as surprisingly overturning the first instance decision of Mr John Randall QC on the issue of whether an express promise, as opposed to merely an expectation or belief, is necessary to give rise to a proprietary estoppel claim in the context of a claim against a deceased’s estate. The position now is that the relevant assurance must amount to a clear representation which is intended to be relied on by the claimant. The rationale for adopting a stricter approach to estoppel claims is that a testator should not find themselves subject to an obligation to dispose of his property in a particular way simply on the basis of intentions that fall short of actual promises.

  
2. Disputes over bequests rise sharply as more Britons join the rich club

Journal Name: Business and Money
Citation: Business and Money, 31 August 2008
Issue Date: 31 August 2008
Summary: London-based law firm Wedlake Bell says the number of disputes over wills has "increased threefold" since 2004.

"As personal wealth has swelled in value, the assets left in wills and trusts have become all the more worth fighting for," said Fay Copeland, head of the firm’s contentious trusts and probate team.
According to research by Merrill Lynch and Capgemini, the number of high-net-worth individuals in the UK rule those who hold financial assets of £500,000 or more, excluding their main residence rule has grown by over 10 per cent in the past two years. Also, increasingly complex family structures and higher divorce rates have prompted more challenges to the terms of individual wills.

"This all helps cloud the issue of who should get what. Potential beneficiaries such as ex-spouses [...]  often feel they have competing claims or have been treated unfairly," Ms Copeland said. "With several recent high-profile cases hitting the headlines and a more litigious climate, people are now more inclined to try to recover what they feel they are due."

The "more litigious climate" also poses a risk to people appointed as executors of the will, the law firm added. It said it has seen an increasing willingness among beneficiaries to sue executors for negligence when distributing the assets of the deceased according to the terms of the will.

3. Investing for children

Journal Name: Money Management
Author: Marcia Banner
Citation: Money Management, 1 July 2008
Issue Date: 1 July 2008
Summary: Despite the plethora of recent changes and suggestions for reform, informed advisers can be assured that they do not have to negotiate complex issues when providing investment advice to those wishing to invest for or on behalf of children. Trustees will generally have a variety of options available to them and even where no express trust exists, the Trustee Act 2000 will allow trustees and nominees alike to consider a wide range of investments including capital growth vehicles (such as bonds) that would once have been prohibited.

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