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Issue 35 – March 2009  

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Cases

*Revenue and Customs Commissioners v Trustees of the Nelson Dance Family

Citation: [2009] All ER (D) 185 (Jan)
Alternative Citations: [2009] EWHC 71 (Ch)
Hearing Date: 22 January 2009
Court: Chancery Division
Judge: Sales J
Representation: Christopher Tidmarsh QC (instructed by the Solicitor for Revenue and Customs) for the Revenue. William Massey QC (instructed by Payne Hicks Beach) for the trustees.

Abstract: Inheritance tax – Exempt transfers and relief. Chancery Division: The appeal of the Revenue and Customs Commissioners against a decision of the Special Commissioner that a transfer of relevant property into the hands of the settlement trustees qualified for business property relief under section 104 of the Inheritance Tax Act 1984 was dismissed.

Catchwords:  Inheritance tax – Exempt transfers and relief – Business property relief (BPR) – Value of business – Deceased carrying out farming business – Deceased executing declarations of trust whereby property transferred to trustees of settlement giving rise to transfer of value – Land having development value and trustees claiming BPR – Special Commissioner allowing appeal of trustees against determination of Revenue and Customs Commissioners that BPR not available – Inheritance Tax Act 1984, ss 3, 104, 105, 110, 112.

Summary: The Inheritance Tax Act 1984, so far as material, provides: '3(1) Subject to the following provisions of this Part of this Act, a transfer of value is a disposition made by a person (the transferor) as a result of which the value of his estate immediately after the disposition is less than it would be but for the disposition; and the amount by which it is less is the value transferred by the transfer… 104(1) Where the whole or part of the value transferred by a transfer of value is attributable to the value of any relevant business property, the whole or that part of the value transferred shall be treated as reduced—(a) in the case of property falling within section 105(1)(a) (b) or (bb) below, by 100 per cent; (b) in the case of other relevant business property, by 50 per cent;… (2) For the purposes of this section, the value transferred by a transfer of value shall be calculated as a value on which no tax is chargeable … 105(1) Subject to the following provisions of this section and to sections 106, 108, 112(3) and 113 below, in this Chapter “relevant business property” means, in relation to any transfer of value,–(a) property consisting of a business or interest in a business;… 110 For the purposes of this Chapter—(a) the value of a business or of an interest in a business shall be taken to be its net value;(b) the net value of a business is 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;… 112(1) In determining for the purposes of this Chapter what part of the value transferred by a transfer of value is attributable to the value of any relevant business property so much of the last-mentioned value as is attributable to any excepted assets within the meaning of subsection (2) below shall be left out of account.'

The deceased owned and carried on a farm business as a sole trader. The assets of the business included land and buildings. The deceased executed a family settlement (the settlement) upon discretionary trusts and, sometime in late 2002 or early 2003, executed two declarations of trust by virtue of which certain agricultural land and buildings, which had formed part of the business, became held on trusts of the settlement. The declarations of trust gave rise to a transfer of value as defined in section 3 of the Inheritance Tax Act 1984 (ITA 1984).

The transfer of value did not, however, include a transfer of the business or an interest in the business to the trustees. The land had development value, so the trustees of the settlement claimed business property relief (BPR) under section 104 of the ITA 1984 in relation to the value of the land over and above its agricultural value. In April 2007, the Revenue and Custom Commissioners (the Revenue) issued a notice of determination to the effect that none of the value transferred was attributable to the value of the business property, and therefore, BPR was not applicable. The trustees appealed to the Special Commissioner against that determination. He ruled in favour of the trustees on the preliminary issue as to whether the transfer of relevant property into the hands of the trustees qualified for BPR, and accordingly, the determination of the Revenue was quashed. The Revenue appealed.

The preliminary issue was whether, on the facts agreed, the transfer of value associated with the creation of the settlement qualified for BPR under section 104 of the ITA 1984.
The court ruled:

It was sufficient for the operation of section 104 of the ITA 1984, that a possible and proper characterisation of the attribution of the value transferred, was that it could be regarded as attributable to the value of a business. Section 104 of the ITA 1984 did not require an exclusive type of characterisation. Accordingly, it did not matter that the attribution could be to the value of land transferred, provided it could be said that the attribution could also be to the value of a business (see [18], [22], of the judgment).

That interpretation of section 104 of the ITA 1984 had the benefit of simplicity and certainty, and involved a direct cross-reference to the test in section 110 of the ITA 1984 to determine whether the value transferred was attributable to the value of the business. It was also in line with the general loss to donor principle in section 103 of the ITA 1984, which governed the operation of the ITA 1984, and the basic approach of the Act that any charge to tax did not turn upon what happened to property when it was in the hands of the transferee. Further, section 112(1) of ITA 1984 contemplated that the value of particular assets could be attributable to 'relevant business property' and also attributable to the assets themselves. Other instances for the application of BPR contemplated by section 105(1) of the ITA 1984 accorded with that interpretation of section 104 of ITA 1984, in that the issue in each case was whether the value of the transferor's relevant business property decreased as a result of the transfer in value, not the value of the assets transferred viewed in isolation (see [23], [25], [27], [28] of the judgment).
 
In the instant case, since the land had, before the transfer, been an asset used in the farming business, a possible and proper characterisation of the attribution of the value transferred was that it could be regarded as attributable to the value of the business, which was relevant business property for the purposes of section 104 of the ITA 1984. Accordingly, BPR was available on the transfer (see [22], [39] of the judgment).

The appeal would be dismissed.

SpC 730 Richardson v Revenue and Customs Commissioners

Hearing Date: 07 January 2009
Court Type: Special Commissioners
Court: Special Commissioners
Judge: Richard Barlow
Representation: Colin Ryder
Decision: Appeal dismissed
Abstract: INHERITANCE TAX – interest – appeal dismissed

Full Text:

Decision number:  SPC 730
Appellants:  GILLIAN RICHARDSON
Case reference number:  SC/3142/2008
Respondents: Commissioners for HM Revenue and Customs
Special commissioners: Richard Barlow
Location: Manchester
Date: 23 October 2008
For the appellants: In person
For the respondents: Colin Ryder
Decision: Appeal dismissed


Decision:

1. The appellant is the executrix of the estate of Mrs Vera Oliver and she appeals in respect of a notice of determination under section 221 of the Inheritance Tax Act 1984 (IHTA) by which she was notified that she was liable, as executrix, to pay £19,662.74 as interest in respect of the estate.
2. I was shown two wills made by Mrs Oliver. In the first, dated 29 May 1961, she left her estate to the appellant ("as my daughter") subject only to the payment of debts, funeral and testamentary expenses. In fact the appellant is not Mrs Oliver's daughter and she referred to her in that way because, at that time, she regarded her as like a daughter to her. In the second will, dated 3 July 1985, Mrs Oliver left her estate to the Motor Neurone Disease Society and appointed a solicitor to act as the executor. I was not shown the third will which was dated 29 May 1996 but it is agreed between the parties that it revoked the 1985 will and left the estate to the appellant.

3. The solicitor who had been appointed executor of the 1985 will and Mrs Oliver, before her death, were both based in York as was the appellant but unfortunately when Mrs Oliver died on 30 September 2002 the appellant was not then apparently still in contact with Mrs Oliver and no-one told the appellant that Mrs Oliver had died for a year or so afterwards. By then the solicitor had started to administer the 1985 will. Mrs Richardson believes that the solicitor had acted incompetently and in bad faith and perhaps even dishonestly in respect of that will and I was told that the Law Society had appointed another firm to take over and run his practice. I am not in a position to make any findings about that nor is it relevant for me to do so.

4. What is certain is that there was a long delay before Mrs Richardson was appointed executrix of the 1996 will. Fortunately for her she had a copy of it and although the original was not found the will was eventually proved by production of that copy. The delay was caused by the necessary enquiries and the applications to the civil courts.

5. Mrs Oliver's estate was valued, in round figures, at £550,000. The precise figures are not relevant as the appeal before me relates only to the interest claimed by the respondents based on the inheritance tax, the amount of which is not in dispute. That interest is £19,662.74 and the calculation of that amount is not in dispute either.

6. That interest is less than the increase in the value of the estate between the death of Mrs Oliver and the time the inheritance tax was paid though, as Mrs Richardson correctly pointed out, that is not relevant to any question whether the interest on the delayed payment of the tax is properly payable.
7. The respondents' claim for interest is based on section 233 of IHTA as amended which read at the material time, so far as is relevant:

"(1) If-
(a) ...
(b) an amount of tax charged on the value transferred by any other chargeable transfer remains unpaid after the end of the period of six months beginning with the end of the month in which the chargeable transfer was made, or
(c) ...
then subject to subsection 1A below it shall carry interest from the end of that period at the rate applicable under section 178 of the Finance Act 1989.

8. Paragraph (a) applies to chargeable transfers other than on death and paragraph (c) applies to certain transfers of nationally important property, woodlands and transfers before 1979. Clearly paragraph (b) is the relevant provision. Section 4 of the Act provides that the death of a person creates a deemed transfer at the moment immediately before the death and so tax is chargeable on that basis and the provision for interest is intended to recognise the fact that HMRC are out of money already due to them if there is a delay in payment.

9. Given the nature of that interest claim, it is not surprising that there is no relief or exception provided for cases where the delay was unavoidable. The interest simply recognises that HMRC were out of the money for whatever reason.

10. Mrs Richardson's argument is that it is unfair that the interest should be charged when it was no fault of hers that the estate took a long time to be administered and that the delays were caused by the solicitor who dealt with the 1985 will and the slowness of the Courts in dealing with her application to have the 1996 will recognised and her appointment as executrix. She also claimed that she had been mislead or misdirected by HMRC.

11. The arguments about general unfairness, even if factually correct, though as the estate increased in value by more than the interest claimed it is a matter of opinion whether any unfairness has resulted; cannot override the unequivocal provisions of the statute.

12. The Special Commissioners do not have any jurisdiction to waive tax otherwise due, even if there has been misdirection by the Department. That was confirmed in the case of Executors of Patch –v- Revenue and Customs SpC 600. However, although it is irrelevant to my decision I will record it that my conclusion on the evidence given is that there was no misdirection. Mr Richardson when he gave evidence said that he or his wife had first contacted the Department in August 2007. Mrs Richardson complained that she had not been sent statements of the interest as it accrued. There is no obligation on HMRC to send such statements and it could not have been done before August 2007 in any event by which time most of the interest had accrued. Mrs Richardson claimed that she or her husband had been told that the interest was frozen at about £13,000 but Mr Rayner the person alleged to have said that denied he had used that word and I prefer his evidence to that of Mr and Mrs Richardson whose evidence was inconsistent on this and other points. In particular they were unsure who was supposed to have been told the interest was frozen and yet claimed to have a clear recollection that that word had been used.

13. Mrs Richardson also complained that she had been told the interest was £13,520.11 and that £5,549.58 had been added to it but in fact both sums were referred to in the Calculation of Inheritance Tax sent to her. The first figure related to the real property in the estate and the other to the other assets. By the time the tax was paid a small amount of additional interest had accrued in addition to those amounts.

14. Even if there had been an unreasonable delay in dealing with the matter on the part of HMRC, which I am satisfied was not the case in any event, that would not have afforded Mrs Richardson a remedy as was confirmed by the Special Commissioners in Prosser –v- IRC SpC 362.

15. In the circumstances the appeal fails. Under section 224(5) of IHTA I confirm the determination appealed against.

Legislation

Enactment of Extra-Statutory Concessions Order 2009

Published Date: 17 February 2009
Jurisdiction: England; Scotland; Northern Ireland; Wales
Enactment Citation: SI 2009/Draft
Commencement date: 6 April 2009
Legislation Affected: Oil Taxation Act 1975, Alcoholic Liquor Duties Act 1979, Inheritance Tax Act 1984, Taxation of Chargeable Gains Act 1992, Value Added Tax Act 1994, Income Tax (Earnings and Pensions) Act 2003, Income Tax (Trading and Other Income) Act 2005 amended
Enabling Power: Finance Act 2008, section 160
Abstract:  SI 2009/Draft: 16 Extra-statutory Concessions (ESCs) given legislative effect on 6 April 2009

Summary: Gives legislative effect to 16 Extra-statutory Concessions (ESCs) relating to subsistence expenses, disposals, close company shares, roll-over relief, private residence relief, employee trusts, artworks, awards, oil allowance, spirits contained in flavourings, and value of imported goods. The House of Lords’ decision in R v HM Commissioners of Inland Revenue exp Wilkinson [2005] UKHL 30(the Wilkinson case) made clear that the scope of HM Revenue & Customs’ administrative discretion to make concessions that depart from the strict statutory position is not as wide as previously thought. This legislation preserves the tax effect of 16 ESCs by putting them on a statutory footing.

Family Provision (Intestate Succession) Order 2009

Published Date: 5 February 2009
Jurisdiction: England; Wales
Enactment Citation: SI 2009/135
Commencement date: 1 February 2009
Legislation Affected: Administration of Estates Act 1925 amended
Enabling Power: Family Provision Act 1966, section 1(1)(a), (b)
Abstract: SI 2009/135: Statutory legacy left to a spouse where no will has been made is increased to a maximum of £450,000.

Summary: Amends the Administration of Estates Act 1925 to increase the statutory legacy in favour of a surviving spouse or civil partner where a person dies intestate. The statutory legacy is increased from £125,000 to £250,000 where the intestate is survived by children, and from £200,000 to £450,000 where there are no surviving children but the intestate is survived by parents or siblings.
Supersedes the Family Provision (Intestate Succession) Order 1993 in relation to the estate of a person dying on or after 1 February 2009.

Articles

Business property

Published Date: 5 February 2009
Author: Robert Argles
Journal Name: Taxation
Journal Date: 5 February 2009
Journal Citation: Taxation, 5 February 2009, 119
Jurisdiction: England; Scotland; Northern Ireland; Wales
Related Legislation: Inheritance Tax Act 1984
Abstract: Taxation, 5 February 2009: Business property relief is a valuable exemption to ease the burden of IHT.

Summary: Provides an overview of business property relief and how this can alleviate the burden of inheritance tax. For those trying to lighten the burden of inheritance tax for their clients, by far the most valuable and significant of the reliefs is that for 'relevant business property', the provisions governing which can be found in Inheritance Tax Act 1984, ss 103 to 114. Discusses how to qualify for business property relief, including, the need to look at the business as a whole, classification of holiday homes, excepted assets and the impact of cash deposits.

Where there's no will there's a mess

Published Date: 1 February 2009
Author: Geoffrey Schindler
Journal Name: Trusts and Estates Law & Tax Journal
Journal Date: 1 December 2008
Journal Citation: Trusts and Estates Law & Tax Journal, December 2008, 2
Jurisdiction: England; Wales
Abstract: Trusts and Estates Law & Tax Journal, December 2008: The government has introduced the inheritance tax transferable nil-rate band.

Summary: Explains one of the alleged merits of the new inheritance tax (IHT) transferable nil-rate band (TNRB) is that you no longer have to explain to clients that the nil-rate band trusts you have included in their will is a trust that comes into existence not in their lifetime but only on their death and how it was a wonderful wheeze to save a large amount of IHT. It is now all very simple. Everything goes to the surviving spouse and free of IHT – so who needs trusts anyway?

Valid Concerns

Published Date: 1 February 2009
Author: Judith Morris
Journal Name: Trusts and Estates Law & Tax Journal
Journal Date: 1 December 2008
Journal Citation: Trusts and Estates Law & Tax Journal, December 2008, 24
Jurisdiction: England; Wales
Abstract:  Trusts and Estates Law & Tax Journal, December 2008: Is there anything more to be said on risks associated with the signing of wills?

Summary: Sets out the risks and pitfalls associated with the signing of wills. Everyone knows these risks but the law reports continue to sport cases where it has gone wrong nonetheless. Even if people are alert to risks, society has changed in ways that mean that potential traps that were relatively rare in the past are now more commonly met in practice.

Tax and Jill

Published Date: 30 January 2009
Author: Penny Bates
Journal Name: Taxation
Journal Date: 29 January 2009
Journal Citation: Taxation, 29 January 2009, 89
Jurisdiction: England; Scotland; Northern Ireland; Wales
Abstract: Taxation, 29 January 2009: Inheritance tax laws do not recognise unmarried couples but there are a number of ways to minimise tax liability.

Summary: Discusses tax planning points for unmarried couples with particular reference to inheritance tax. Considers the definition of a couple for tax purposes, although the rules on tax credits and newer tax rules applying to non-domiciled persons include those 'living together as husband and wife' these changes have not been reflected in the inheritance tax and capital gains tax rules which relate to married couples/civil partners. Assesses a number of ways unmarried couples can mitigate inheritance tax liabilities, looks at, the inter-spouse exemption, equalisation and transfers, use of insurance, immediate post-death interests and business property relief.

Cohabitation and Intestacy: Public Opinion and Law Reform
Published Date: 24 January 2009
Author: Catherine Williams, Garfield Potter and Gillian Douglas
Journal Name: Child and Family Law Quarterly
Journal Date: 1 December 2008
Journal Citation: [2008] CFLQ 499
Jurisdiction: England; Wales

Abstract: Child and Family Law Quarterly, December 2008: Any response to current problems in cohabitation law must strike the right balance between individual rights of self-determination, utility and the need to apply the protective function of family law.

Summary: Reviews the current law and reports on a large survey of public opinion on the position of cohabitants whose partners die. The findings clearly show that a large majority of the general public would support some automatic provision being made for a surviving cohabitant, with a greater share being felt appropriate both the longer the relationship had lasted and if the partners had had children. The Law Commission should examine very thoroughly the scope and feasibility of extending the intestacy rules to cover surviving cohabitants.

Features

IHT affected by UK/Guernsey agreement on Tax Information Exchange

Published Date: 21 January 2009
Jurisdiction: UK; Guernsey
Abstract: The UK and Guernsey have acted to ensure the availability of information should either State require it in the process of a domestic investigation into tax matters. It will enter into force when both countries have notified the other that they legislated to bring it into domestic effect.
Analysis: The governments of the United Kingdom and Guernsey have signed a tax information exchange agreement, amending the 1952 Arrangement between the two countries to prevent fiscal evasion and avoid double taxation.

The taxes stated as being affected in the UK are:



  • Income tax;
  • Capital gains tax;
  • Corporation tax;
  • Inheritance tax;
  • VAT;
  • For the State of Guernsey:
  • Income tax;
  • Dwellings profits tax
Information can be requested on relevant matters by the Commissioners for Her Majesty's Customs and Revenue for the UK, and by the Administrator of Income Tax in he case of Guernsey. When an information request is made, all appropriate information gathering techniques necessary shall be used. If requested, this can extend to including depositions of witness statements and authenticated copies of original records.

Both the UK and Guernsey are to ensure they have the authority to obtain and provide: information held by banks and other financial institutions; information regarding the ownership of companies, partnerships, collective investment schemes, trusts, foundations and other persons, including information on all persons in an ownership chain.