Interest owed on inheritance tax
LNB News 25/03/2009 40
Published date: 25 March 2009
Jurisdiction: UK
Related legislation: Inheritance Tax Act 1984
Related cases: Richardson v Revenue and Customs Commissioners; Note SpC 730, [2009] STC (SCD) 202; SpC 600 Executors of Patch (deceased) v Revenue and Customs Commissioners; SpC 362 Prosser (personal representative of Jempson dec'd) v IRC
Related digests: LNB News 29/01/2009 30
Abstract: Her Majesty's Revenue and Customs inheritance tax guidelines state that in most cases, inheritance tax must be paid within six months of the end of the month in which the deceased died. After this, interest will be charged on the amount outstanding. Brian Maguire reports.
Analysis: Appealing against an HMRC claim for interest to be paid on inheritance tax in Richardson v Revenue and Customs Commissioners; Note SpC 730, [2009] STC (SCD) 202, the Appellant, Mrs Richardson, failed to prove that the interest should be waived because of a series of complicated delaying factors beyond her control.
Dismissing Mrs Richardson's arguments about general unfairness, commissioner Barlow said he did not have any jurisdiction to waive tax otherwise due, even if there had been misdirection by the Department, a principle confirmed in the Executors of Patch v Revenue and Customs SpC 600.
In Mrs Richardson's case, HMRC avoided any direct loss of revenue by relying on a strict interpretation of statute and the Commissioner's finding that any delay on the part of HMRC, fair or otherwise, did not diminish the value of revenue to be paid.
However, payment can be made in annual installments over 10 years. If the value of the estate is tied up in property such as a house, HMRC may suffer a consequential loss of revenue. This may be seen when a timeline of fixed interest rates is compared with the appreciation in value of the property, or trust being taxed, when considered over the lifetime of the inheritance tax (IHT) payment plan.
Nicola Roberts, tax director, Deloitte LLP remarks: "As a general rule of thumb, interest is not a penalty, interest is to take account of late payment and cash flow variances. If HMRC take the view that someone has been negligent in their tax return, then interest and a penalty will have to be paid. In this case, there wasn't any negligence, so it was only interest that was charged because the tax was late.
"With property, for instance, if the property devalues within a statutory time, for example, 12 months, you can then go back and reduce the tax bill. There is some element of discretion and revision but the circumstances are limited to the changed value of the inheritance tax, it doesn't affect the rate to interest attached to the IHT.
"If you think you will have trouble paying IHT on time it is important to speak with HMRC, to arrange a payment plan. Yes, you will be charged interest but perhaps over a period of about 10 years, which is a means for assisting people who have to pay IHT on an illiquid asset such as a house. However, the interest cannot be seen as a penalty, it is an adjustment."
Mrs Richardson also complained that HMRC had not sent her statements of interest as it accrued. Commissioner Barlow held there is no obligation on HMRC to send such statements. She further argued that she had been told the interest was £13,520.11 and that £5549.58 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.
Even if there had been an unreasonable delay in dealing with the matter on the part of HMRC, Commissioner Barlow cited Prosser v IRC SpC 362as affirming that would not have afforded Mrs Richardson a remedy for the unreasonable delay.
The respondents' claim for interest is based on Inheritance Tax Act 1984,section 233 (1)(b), which refers to: "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."
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.
Commissioner Barlow commented that: "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." An HMRC spokesperson declined to comment further on the case citing the confidentiality of individual taxpayer cases.
New £450,000 intestacy entitlement
LNB News 23/03/2009 69
Published date: 23 March 2009
Jurisdiction: UK
Related legislation: SI 2009/135
Related digests: Consultation Paper: Administration of Estates--Review of the Statutory Legacy, LNB News 07/06/2005 46; Cohabitation and Intestacy: Public Opinion and Law Reform, LNB News 26/01/2009 16
Abstract: From 1 February 2009 the financial entitlement for someone whose spouse or civil partner has died without leaving a will was doubled, with the potential to now reach £450,000. Brian Maguire reports.
Analysis: Commenting on this new entitlement, Nicola Roberts, tax director at Deloitte LLP, says: "This new limit serves as a useful reminder that people ought to make a will to enable them to direct their assets as they choose without having to worry about what the intestacy limits are. The intestacy entitlement isn't really like an exemption. When you die without a will, statutory provisions come into play; X amount has to go to the spouse, X amount goes to the children, X amount to the parents and so on. It isn't exempt from tax.
"Dying intestate means probate will take longer because it is necessary to find relatives or others involved in the process. A will makes it significantly easier to manage the estate." Roberts added: "The new limits look sensible, in context with current average house price."
However, she continued: "A regional model of property valuation is unlikely to work; it would be very difficult to calculate and would require continual adjustment. Regional variants in the tax system don't really exist in the United Kingdom, with the exception, perhaps, of the council tax structure. Such a system would probably open up the government to accusations that better off people were being treated differently."
Justice minister, Bridget Prentice announced the new entitlement as part of what she described as the biggest overhaul of the coroners system in 100 years.
"The Coroners and Justice Bill, currently going through parliament, sets out my plans for the first-ever 'Charter for the Bereaved'. The charter will also make sure [...] a person whose spouse or civil partner has died without leaving a will is now entitled to significantly increased financial support."
Until the beginning of February a spouse or civil partner with children automatically got £125,000 from the estate of someone who has died without leaving a will. Where someone leaves not only a spouse or civil partner but also parents or siblings, but no children, they got £200,000. Now the amounts have been increase to £250,000 and £450,000 respectively.
The Family Provision (Intestate Succession) Order 2009 sets out the new increases to the levels of the statutory legacy, which is payable to the surviving spouse or civil partner only. The intestacy rules however are a default regime and people can opt out of them by making a will.
A spokesperson for HMRC said that changes to the statutory legacy were set out in the Ministry of Justice's post-consultation report Administration of Estates--Review of the Statutory Legacy (CP(R) 11/05), which was published in August 2008.
This review focused on the situation in which a person dies without a valid will, leaving assets and a spouse, and where the law defines how much of the estate the spouse will inherit. The amount the spouse inherits depends on the size of the estate. If the estate is worth more than the statutory legacy, the remainder is divided between the spouse and children or, if no children, between the spouse and parents or siblings.
Since these rules were first introduced the aim has been to reflect what would probably have been the wishes of the average person dying without a will, had he or she made a will. Four main principles characterise this hypothetical will. In its review, the Ministry of Justice describes them, stating: "First, it is clear that at all times overwhelming priority has been accorded to the surviving spouse. Secondly, prominence has been given to securing the marital home for the use of the surviving spouse. Thirdly, the expectations of the children and other relatives have been acknowledged. Fourthly, it is reasonable to assume that, latterly at least, some allowance was made for future increases in value."
According to Ministry of Justice figures, each year, there could be up to 9000 estates where the statutory legacy prevents the surviving spouse from receiving the whole estate, and of these, about 4000 where the surviving spouse might be at risk of losing the home.
Articles
The promised land
LNB News 22/04/2009 24
Published date: 22 April 2009
Author: Mark Pawlowski
Journal name: Solicitors Journal
Journal date: 7 April 2009
Journal citation: Solicitors Journal, 7 April 2009, 10
Jurisdiction: England; Wales
Related cases: Thorner v Major [2009] UKHL 18, [2009] 1 WLR 776
Abstract: Solicitors Journal, 7 April 2009: Does ruling provide a return to orthodoxy in relation to proprietary estoppel?
Summary: Examines the House of Lords ruling in Thorner v Majors [2009], which overturned a Court of Appeal decision and re-instated the first instance ruling. The case looked at two issues, the quality of the assurance necessary to found a propriety estoppel claim and the degree of certainty required in identifying the property forming the subject matter of the estoppel claim. Although the House of Lords concluded that the relevant assurance had to be clear and unambiguous, the relevant representations in the instant case had to be viewed within their factual context.
Wills & Probate: The cost of settlement
LNB News 21/04/2009 34
Published date: 21 April 2009
Author: Michael Tringham
Journal name: New Law Journal
Journal date: 17 April 2009
Journal citation: 159 NLJ 548
Jurisdiction: England; Scotland; Northern Ireland; Wales
Related cases: Thorner v Major and Others [2009] All ER (D) 257 (Mar)
Abstract: New Law Journal, Issue 7364-7365: Proprietary estoppel partly defeats intestacy rules.
Summary: Examines the House of Lords case of Thorner v Major and Others in which the claimant alleged benefit of a proprietary estoppel against an estate. Assurances could in the appropriate context constitute a sufficiently clear and unequivocal representation to establish a proprietary estoppel. As a result the defendants had held the farm on bare trust for the claimant since the death of the deceased.
Don't get trapped
LNB News 21/04/2009 46
Published date: 21 April 2009
Author: Malcolm Finney
Journal name: Taxation
Journal date: 16 April 2009
Journal citation: Taxation, 16 April 2009, 358
Jurisdiction: England; Scotland; Northern Ireland; Wales
Abstract: Taxation, 16 April 2009: Excluded property is not always as excluded as one might think
Summary: Expains how excluded property falls outside the scope of inheritance tax and does not therefore form part of a deceased's death estate; lifetime gifts of excluded property do not fall to be treated as chargeable lifetime transfers or indeed potentially exempt transfers. Prima facie, there would seem little likelihood that any problems could arise for non-UK domiciled individuals who ensure that their estate is primarily comprised of excluded property. However, some traps do exist for the unwary.
Practice Points: The French estate of an English client
LNB News 06/04/2009 94
Published Date: 6 April 2009
Author: Laurent Delanoe
Journal name: Law Society Gazette
Journal date: 26 March 2009
Journal citation: (2009) LS Gaz, 26 Mar, 18
Jurisdiction: England; European Union; Wales; France
Abstract: Law Society Gazette, 26 March 2009: Having a French will when one owns property in France will simplify and reduce the legal process at the time of the death.
Summary: Outlines a case study handling the issue of inheritance between England, Wales and France. In accordance with the French rules of private international law, the succession of moveable property is governed by the law of the deceased's domicile at the time of death and the succession of immoveable property is governed by the law of the country where the property is situated. Any formalities regarding the will itself will be governed by the law of the country where the will is found.
LNB News 25/03/2009 40
Published date: 25 March 2009
Jurisdiction: UK
Related legislation: Inheritance Tax Act 1984
Related cases: Richardson v Revenue and Customs Commissioners; Note SpC 730, [2009] STC (SCD) 202; SpC 600 Executors of Patch (deceased) v Revenue and Customs Commissioners; SpC 362 Prosser (personal representative of Jempson dec'd) v IRC
Related digests: LNB News 29/01/2009 30
Abstract: Her Majesty's Revenue and Customs inheritance tax guidelines state that in most cases, inheritance tax must be paid within six months of the end of the month in which the deceased died. After this, interest will be charged on the amount outstanding. Brian Maguire reports.
Analysis: Appealing against an HMRC claim for interest to be paid on inheritance tax in Richardson v Revenue and Customs Commissioners; Note SpC 730, [2009] STC (SCD) 202, the Appellant, Mrs Richardson, failed to prove that the interest should be waived because of a series of complicated delaying factors beyond her control.
Dismissing Mrs Richardson's arguments about general unfairness, commissioner Barlow said he did not have any jurisdiction to waive tax otherwise due, even if there had been misdirection by the Department, a principle confirmed in the Executors of Patch v Revenue and Customs SpC 600.
In Mrs Richardson's case, HMRC avoided any direct loss of revenue by relying on a strict interpretation of statute and the Commissioner's finding that any delay on the part of HMRC, fair or otherwise, did not diminish the value of revenue to be paid.
However, payment can be made in annual installments over 10 years. If the value of the estate is tied up in property such as a house, HMRC may suffer a consequential loss of revenue. This may be seen when a timeline of fixed interest rates is compared with the appreciation in value of the property, or trust being taxed, when considered over the lifetime of the inheritance tax (IHT) payment plan.
Nicola Roberts, tax director, Deloitte LLP remarks: "As a general rule of thumb, interest is not a penalty, interest is to take account of late payment and cash flow variances. If HMRC take the view that someone has been negligent in their tax return, then interest and a penalty will have to be paid. In this case, there wasn't any negligence, so it was only interest that was charged because the tax was late.
"With property, for instance, if the property devalues within a statutory time, for example, 12 months, you can then go back and reduce the tax bill. There is some element of discretion and revision but the circumstances are limited to the changed value of the inheritance tax, it doesn't affect the rate to interest attached to the IHT.
"If you think you will have trouble paying IHT on time it is important to speak with HMRC, to arrange a payment plan. Yes, you will be charged interest but perhaps over a period of about 10 years, which is a means for assisting people who have to pay IHT on an illiquid asset such as a house. However, the interest cannot be seen as a penalty, it is an adjustment."
Mrs Richardson also complained that HMRC had not sent her statements of interest as it accrued. Commissioner Barlow held there is no obligation on HMRC to send such statements. She further argued that she had been told the interest was £13,520.11 and that £5549.58 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.
Even if there had been an unreasonable delay in dealing with the matter on the part of HMRC, Commissioner Barlow cited Prosser v IRC SpC 362as affirming that would not have afforded Mrs Richardson a remedy for the unreasonable delay.
The respondents' claim for interest is based on Inheritance Tax Act 1984,section 233 (1)(b), which refers to: "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."
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.
Commissioner Barlow commented that: "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." An HMRC spokesperson declined to comment further on the case citing the confidentiality of individual taxpayer cases.
New £450,000 intestacy entitlement
LNB News 23/03/2009 69
Published date: 23 March 2009
Jurisdiction: UK
Related legislation: SI 2009/135
Related digests: Consultation Paper: Administration of Estates--Review of the Statutory Legacy, LNB News 07/06/2005 46; Cohabitation and Intestacy: Public Opinion and Law Reform, LNB News 26/01/2009 16
Abstract: From 1 February 2009 the financial entitlement for someone whose spouse or civil partner has died without leaving a will was doubled, with the potential to now reach £450,000. Brian Maguire reports.
Analysis: Commenting on this new entitlement, Nicola Roberts, tax director at Deloitte LLP, says: "This new limit serves as a useful reminder that people ought to make a will to enable them to direct their assets as they choose without having to worry about what the intestacy limits are. The intestacy entitlement isn't really like an exemption. When you die without a will, statutory provisions come into play; X amount has to go to the spouse, X amount goes to the children, X amount to the parents and so on. It isn't exempt from tax.
"Dying intestate means probate will take longer because it is necessary to find relatives or others involved in the process. A will makes it significantly easier to manage the estate." Roberts added: "The new limits look sensible, in context with current average house price."
However, she continued: "A regional model of property valuation is unlikely to work; it would be very difficult to calculate and would require continual adjustment. Regional variants in the tax system don't really exist in the United Kingdom, with the exception, perhaps, of the council tax structure. Such a system would probably open up the government to accusations that better off people were being treated differently."
Justice minister, Bridget Prentice announced the new entitlement as part of what she described as the biggest overhaul of the coroners system in 100 years.
"The Coroners and Justice Bill, currently going through parliament, sets out my plans for the first-ever 'Charter for the Bereaved'. The charter will also make sure [...] a person whose spouse or civil partner has died without leaving a will is now entitled to significantly increased financial support."
Until the beginning of February a spouse or civil partner with children automatically got £125,000 from the estate of someone who has died without leaving a will. Where someone leaves not only a spouse or civil partner but also parents or siblings, but no children, they got £200,000. Now the amounts have been increase to £250,000 and £450,000 respectively.
The Family Provision (Intestate Succession) Order 2009 sets out the new increases to the levels of the statutory legacy, which is payable to the surviving spouse or civil partner only. The intestacy rules however are a default regime and people can opt out of them by making a will.
A spokesperson for HMRC said that changes to the statutory legacy were set out in the Ministry of Justice's post-consultation report Administration of Estates--Review of the Statutory Legacy (CP(R) 11/05), which was published in August 2008.
This review focused on the situation in which a person dies without a valid will, leaving assets and a spouse, and where the law defines how much of the estate the spouse will inherit. The amount the spouse inherits depends on the size of the estate. If the estate is worth more than the statutory legacy, the remainder is divided between the spouse and children or, if no children, between the spouse and parents or siblings.
Since these rules were first introduced the aim has been to reflect what would probably have been the wishes of the average person dying without a will, had he or she made a will. Four main principles characterise this hypothetical will. In its review, the Ministry of Justice describes them, stating: "First, it is clear that at all times overwhelming priority has been accorded to the surviving spouse. Secondly, prominence has been given to securing the marital home for the use of the surviving spouse. Thirdly, the expectations of the children and other relatives have been acknowledged. Fourthly, it is reasonable to assume that, latterly at least, some allowance was made for future increases in value."
According to Ministry of Justice figures, each year, there could be up to 9000 estates where the statutory legacy prevents the surviving spouse from receiving the whole estate, and of these, about 4000 where the surviving spouse might be at risk of losing the home.
Articles
The promised land
LNB News 22/04/2009 24
Published date: 22 April 2009
Author: Mark Pawlowski
Journal name: Solicitors Journal
Journal date: 7 April 2009
Journal citation: Solicitors Journal, 7 April 2009, 10
Jurisdiction: England; Wales
Related cases: Thorner v Major [2009] UKHL 18, [2009] 1 WLR 776
Abstract: Solicitors Journal, 7 April 2009: Does ruling provide a return to orthodoxy in relation to proprietary estoppel?
Summary: Examines the House of Lords ruling in Thorner v Majors [2009], which overturned a Court of Appeal decision and re-instated the first instance ruling. The case looked at two issues, the quality of the assurance necessary to found a propriety estoppel claim and the degree of certainty required in identifying the property forming the subject matter of the estoppel claim. Although the House of Lords concluded that the relevant assurance had to be clear and unambiguous, the relevant representations in the instant case had to be viewed within their factual context.
Wills & Probate: The cost of settlement
LNB News 21/04/2009 34
Published date: 21 April 2009
Author: Michael Tringham
Journal name: New Law Journal
Journal date: 17 April 2009
Journal citation: 159 NLJ 548
Jurisdiction: England; Scotland; Northern Ireland; Wales
Related cases: Thorner v Major and Others [2009] All ER (D) 257 (Mar)
Abstract: New Law Journal, Issue 7364-7365: Proprietary estoppel partly defeats intestacy rules.
Summary: Examines the House of Lords case of Thorner v Major and Others in which the claimant alleged benefit of a proprietary estoppel against an estate. Assurances could in the appropriate context constitute a sufficiently clear and unequivocal representation to establish a proprietary estoppel. As a result the defendants had held the farm on bare trust for the claimant since the death of the deceased.
Don't get trapped
LNB News 21/04/2009 46
Published date: 21 April 2009
Author: Malcolm Finney
Journal name: Taxation
Journal date: 16 April 2009
Journal citation: Taxation, 16 April 2009, 358
Jurisdiction: England; Scotland; Northern Ireland; Wales
Abstract: Taxation, 16 April 2009: Excluded property is not always as excluded as one might think
Summary: Expains how excluded property falls outside the scope of inheritance tax and does not therefore form part of a deceased's death estate; lifetime gifts of excluded property do not fall to be treated as chargeable lifetime transfers or indeed potentially exempt transfers. Prima facie, there would seem little likelihood that any problems could arise for non-UK domiciled individuals who ensure that their estate is primarily comprised of excluded property. However, some traps do exist for the unwary.
Practice Points: The French estate of an English client
LNB News 06/04/2009 94
Published Date: 6 April 2009
Author: Laurent Delanoe
Journal name: Law Society Gazette
Journal date: 26 March 2009
Journal citation: (2009) LS Gaz, 26 Mar, 18
Jurisdiction: England; European Union; Wales; France
Abstract: Law Society Gazette, 26 March 2009: Having a French will when one owns property in France will simplify and reduce the legal process at the time of the death.
Summary: Outlines a case study handling the issue of inheritance between England, Wales and France. In accordance with the French rules of private international law, the succession of moveable property is governed by the law of the deceased's domicile at the time of death and the succession of immoveable property is governed by the law of the country where the property is situated. Any formalities regarding the will itself will be governed by the law of the country where the will is found.
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