14. Whittingehame Farming Coming (VAT registration number 269 8479 84) was registered for VAT purposes in the name of Lord Balfour during the period from 28 September 1999 to 10 November 2002, and Lord Balfour and Andrew Michael Brander (as partners of the partnership referred to at paragraph 20 below) until Lord Balfour's death on 27 June 2003.
15. There was a composite insurance policy covering the whole of the Estate. The insurance premium was apportioned between Whittingehame Farming Company and the Whittingehame Estate Trust prior to 10 November 2002.
16. In December 1999 Bidwells, Property Consultants, 5 Atholl Place, Perth, were appointed by Lord Balfour to take over the factoring/management of Whittingehame Estate.
17. Bidwells invoiced Whittingehame Farming Company and Whittingehame Estate Trust separately.
18. In November 2003 Messrs Bidwells produced a report and valuation in respect of Whittingehame Estate. Appendix 4 thereof provided a schedule of cottages and other premises on the Estate, 28 in number. The first 26 correspond to those cottages identified in a schedule produced by the District Valuer, elsewhere herein described. In respect of those 26 cottages and other premises the Bidwells' schedule is true and accurate as to the property identified, the commencement of letting, the type of letting, the rent per annum as at the date stated, the review date and the tenant.
19. On 6 November 2002 the House of Lords declared the deceased to be the fee simple proprietor of the heritable estate hitherto treated as Trust heritage, pursuant to section 47 of the Entail Amendment (Scotland) Act 1848.
20. On 16 February 2003 by written agreement the deceased entered into a partnership with Andrew Michael Brander. The effective date of commencement of that partnership was backdated to 10 November 2002. The agreement is produced.
21. The partnership agreement of 16 February 2003 was to the effect that the partnership name would be Whittingehame Farming Company.
22. The partnership agreement provided for the introduction of initial capital into the business on the basis that (a) the heritable property comprising the whole of Whittingehame Estate belonging to the deceased was contributed and credited to Partnership Capital Account A, and belonged to the deceased; and (b) the capital of the operation previously known as Whittingehame Farming Company, one half having been gifted to the said Andrew Michael Brander by the deceased, was contributed equally by the two and credited to Partnership Capital Account B, and belonged to them equally.
23. With effect from 10 November 2002 the capital value of the whole heritable estate of Whittingehame Estate was treated as a fixed asset of Whittingehame Farming Company in the partnership accounts, its initially stated value being £3 million.
24. With effect from 10 November 2002 the capital introduced to Partnership Capital Account B was £198,117, this being the closing net assets balance represented by the capital and current accounts in the Whittingehame Farming Company accounts for the period to 10 November 2002.
25. After 10 November 2002 all non-heritable property of the Estate Trust remained in the Trust
26. The list of properties owned by Whittingehame Farming Company, being for the avoidance of doubt the partnership between the deceased and Mr Brander, as at the date of death is described in the valuation report by Bidwells that is produced. A return was made to the Inland Revenue Capital Taxes Office in respect of certain property and it is produced. The said return gave suggested valuations for the various properties comprising the Estate on an open market value basis.
27. By letter of 12 July 2005 the District Valuer intimated agreement in respect of the various properties. In relation to items a-f parties are agreed on the basis set out in the said letter, but those matters form no part of the subject matter of the present appeal. Items h and i do not form part of the subject matter of the present appeal.
28. In the said letter of 12 July 2005 the District Valuer confirmed agreement of an open market value for item g, being 26 houses and cottages, 23 of which were let at the date of the deceased's death, in the sum of £2,818,000. He provided a schedule to the letter which, inter alia identified the 26 houses and cottages comprising item g. The schedule is accurate as to the identification of those properties. Parties are agreed as to that open market value for item g. The treatment of this property for inheritance tax purposes is at the heart of the present appeal.
12. In the light of the oral and documentary evidence, I make the following additional findings-in-fact:-
29. Whittingehame Estate, which extends to about 771.85 hectares (1907.25 acres), is a low ground agricultural estate in East Lothian, with a historic Tower House dating from the late fifteenth century. It was acquired by the Balfour family in about 1817 and then extended to some 10,000 acres. Large parts of the estate had to be sold in the 1930s and the 1960s to pay estate duty. Before Lord Balfour's death there were two in-hand farms (Whittingehame Mains Farm and Eastfield Farm), three let farms (on secure agricultural tenancies), some 26 let houses and cottages (mainly let on short assured tenancies), and two sets of business premises. The in-hand farms at Whittingehame Mains and Eastfied extend to about 269 hectares. The three let farms at Papple, Overfield and Luggate extend to about 371 hectares. There are also policy parks (let on a seasonal basis) and valuable sporting rights attached to the Estate.
30. The in-hand farms the policy parks, and the woodlands extend to about 393.6 hectares while the let farms extend to about 371 hectares.
31. The first Earl of Balfour's Trust Disposition and Settlement provided inter alia as follows:-
"IN THE SEVENTH PLACE, With regard to the whole rest and residue of my means and estate heritable and moveable, real and persona, wherever the same may be situated, I direct my Trustees to .......pay or apply the whole nett revenue or income thereof for behoof of the following series of heirs .... each for his or her liferent use allenarly videlicet:- My brother ............... whom failing .......... in fee, and that in the manner for the purposes, with the faculties and subject to the powers conferred by me and after expressed: (First) I hereby declare that all of the liferents successively before provided shall be for alimentary use only, and the respective rights and interests shall not be assignable nor affectable by the debts or deeds of the liferenters or the diligence of creditors: (Second) It is my wish and intention and I direct my Trustees that my said brother Gerald .......shall be entitled to the whole past due and current rents feuduties and other profits of my landed estates without reference to the crops or years for which they may be payable as if such liferenter were absolute proprietor..........
(Third) I desire and direct my Trustees to put my said brother Gerald .........into the personal occupancy and liferent use and possession, not only of my landed estates of Whittingehame and others in Scotland............And I desire and direct my Trustees as far as possible consistently with the terms of this Trust to confer upon my said brother Gerald ..... all the rights, powers and privileges that are conferred by law upon liferenters my wish and intention being that the successive liferenters should have the same rights, powers and privileges and that under the same obligations as if I had conveyed the said lands and estates in Scotland ......... directly to them in liferent in their order successively: and without prejudice to the foresaid rights, powers and privileges but in addition thereto I authorise my Trustees to confer upon each of the successive liferenters power to open up and work minerals and to let the subjects liferented including such minerals and that on lease at a fair rent, but without grassum or other consideration for granting such lease other than the rent or royalties and not exceeding the periods following videlicet:- In the case of (One) Agricultural subjects, nineteen years: (Two) Minerals....(Three) the Mansion House.............. and all other house property furnished or unfurnished... Ten years: and (Four) Shootings and fishings, Ten years: Declaring that it shall be the duty of my Trustees to see that the buildings, fences, and others on the said estates ..... are kept by the successive liferenters in proper repair and the whole buildings .......... duly and fully insured in the name of my Trustees........
(Fourth) Whereas I have at present on hand and in my own occupancy the Home Farm of Whittingehame (which includes Overfield Farm) it is my wish and desire that means should be provided to permit of the same being carried on as I have been in use to do, therefore I hereby confer upon my Trustees full power and authority with the consent of the liferenter for the time to carry on the Home Farm (including Overfield Farm) or to let the same or any part thereof for such term or terms as they think fit, in which latter case the whole stock, crop and implements of husbandry on said farm including as aforesaid, or such part thereof as may be necessary shall be realised and disposed of and the nett proceeds shall fall into the residue of my means and estate and be invested and managed by my Trustees as part thereof, and any loss incurred in the course of carrying on or managing the said farm shall be borne by the liferenter for the time, and all profit shall belong to him or her as his or her own property........."
Lord Balfour
32. Lord Balfour in his daily business activities made no demarcation between the Whittingehame Farming Company ("WFC") and the Estate. Lord Balfour held keys for all properties on the Estate. Much of Lord Balfour's correspondence was written on notepaper simply headed Whittingehame Estate Office. That correspondence also shows that Lord Balfour met the costs of running the Estate with, generally, no particular distinction being drawn between capital improvements and repairs After George Thomson's death, Lord Balfour ran the in-hand farms on a contract farming basis; the contract farming agreement was between Lord Balfour and the contractor. Lord Balfour's own view appears to have been that before the Trust came to an end in 2002 everything was run as one business.
33. There was no strong demarcation for staff either. Lord Balfour handled all matters relating to staff. Lord Balfour's secretary dealt with all aspects of the Estate and the WFC. Another illustration of this lack of any clear line of division is the employment of David Young who was a general worker on the Estate from at least 1968 until his death in 1997. PAYE records reveal that his employer was Lord Balfour but his wages were paid from the trust funds of the Estate and not WFC. There was no apportionment of his salary. The gamekeeper was employed by Lord Balfour. His responsibilities must have ranged across the whole estate and certainly beyond the in-hand farms.
34. WFC was concerned solely with in-hand farming which included rent from cottages on the two in-hand farms, until 2001 when the income from the cottage rents began to be remitted to the Estate.
The Trustees
35. Robert Balfour is a chartered surveyor and second cousin of Lord Balfour. Mr Balfour was a trustee under the 1923 Trust Deed from the mid 1980's. Mr Balfour's father had been a Trustee from the outset. The Trustees had no active role to play as Lord Balfour occupied and ran the whole Estate as if he were the owner; in particular, Lord Balfour dealt with the letting of residential properties on the Estate through Anderson Strathern, solicitors, and before them, Strathern and Blair; Mr Balfour as trustee, was never called upon to sign any lease; the Trustees were not authorised signatories on any bank account; the income and expenditure of the Estate were dealt with by Lord Balfour; Lord Balfour dealt with all forestry work; property disposals were instigated by Lord Balfour; Lord Balfour's wishes on estate matters, which Lord Balfour regarded as his own business, were invariably acceded to by the Trustees. Very few meetings of the Trustees took place. Trust Accounts were issued to the Trustees once they had been approved by Lord Balfour; these accounts did not include the in-hand farming operations; The correspondence produced also shows that the Trust solicitors in effect took instructions from Lord Balfour rather than the Trustees. The Trustees became involved in formal or administrative matters only.
Bidwells
36. Bidwells were appointed in 1999. They provided inter alia a book keeping service, preparing annual accounts and VAT returns; they prepared separate annual accounts for the Estate and the WFC; there were separate cheque books and thus accounts for WFC and the Estate; Lord Balfour was an authorised signatory on both accounts. Mr Donald produced an analysis of annual accounts which showed that income from crop and cattle sales, subsidies, grazing and potato lets, cottage and some let farms and some wayleaves was received by WFC; and income from some let farms, some cottages, woodlands and some wayleaves was paid to the Estate; there was a composite insurance policy for the whole Estate; the premium was apportioned between the WFC and the Estate. Bidwells carried out the day to day management and reported to Lord Balfour on all matters (letter of appointment dated 22/12/99); they managed the woodlands, the let housing stock and the agricultural tenancies although Lord Balfour was still involved in various aspects of these activities; and instructed various property repairs and maintenance on the Estate.
37. Income from the in-hand farming operations exceeded the income generated by the letting of property (cottages etc). The majority of cottage lets were on short assured tenancies, as already noted. Mr Donald spent the bulk of his time on the farming operations rather than on the letting side. He understood the whole operation on the Estate to be Lord Balfour's business. The balance of labour expended by employees on the Estate related to farming operations rather than the lettings. If one took into account management time, the balance was the other way round. However, in 2001 and 2002 Bidwells spent a little over three quarters of their time on farming and forestry matters and a little less than one quarter on property letting and maintenance matters. They rendered separate fee notes to the WFC and to the Estate
38. WFC was concerned solely with in-han12d farming which included rent from cottages on the two in-hand farms, until 2001 when the income from those cottage rents went to the Estate. The following Table summarise trading and letting income between 2000 and 2002.
38. WFC was concerned solely with in-han12d farming which included rent from cottages on the two in-hand farms, until 2001 when the income from those cottage rents went to the Estate. The following informationa summarises trading and letting income between 2000 and 2002.
Year: 2001
Total trading turnover: £121.566 of which £304 was attributed to Woodlands Income and Treated as Trust Income payable To the Trustees
Year: 2001
Letting turnover: £67,009 of which £64,026 was attributed to cottage, farm and other rents and wayleaves and treated as trust income payable to the Trustees; the balance being grazing income cottage and farm rents and wayleaves paid to the WFC
Year: 20012
Total trading turnover: £119,804 of which £3,585 was treated as such Trust income
Letting turnover: £82,027 of which £76,520 was treated as Trust income
Year: 20023
Total Trading Turnover: £101,966 of which £1,187 was treated as such Trust Income
Letting turnover: £95,266 of which £78.722 was treated as Trust Income
Year: Nov 2002?
Total Trading Turnover: £119,364 of which £196 was treated as such Trust Income
Letting Turnover: £96,248 of which £75,448 was treated as Trust Income
General
Wholly or mainly making or holding investments?
39. The carrying on of a business which consists wholly of making or holding investments might suggest a relatively passive activity which is designed to achieve investment or capital gain and/or receive what may be described as passive income or return on capital. Once the investment is made the return, if any, will follow generally because of the soundness of the investment and the state of the market in which the particular investment is made rather than the continuing efforts of the owner of the funds or property invested. A trading activity usually involves the buying and/or selling of goods or the provision of services or a mixture of both.
The extent of profit from the activity directly depends on the effort, and the efficiency and quality of effort put into the business by its owner and employees. There are no doubt grey areas where the business of making or holding investments and trading activities meet or overlap. Be that as it may, a different view has been expressed in Martin v IRC 1995 STC (SCD) 5, and Burkinyoung v IRC 1995 STC (SCD) 29. The reasoning in that case is cogent. However, a broader approach was taken by the Court of Appeal in IRC v George 2003 STC 147 at paragraph 60 and 61
40. In the circumstances as I have found them to be in the present proceedings, to suggest that the activities carried on at Whittingehame Estate comprised wholly or mainly the making or holding of investments is to belittle the efforts required properly and profitably to manage the various components of an estate of this nature. Even the residential letting aspect of the activities required Lord Balfour's experience, business acumen and careful planning. They are an important component in the overall business; the cottages were historically part of the overall farming enterprises or housed full time estate workers.
On the evidence, it is apparent that Lord Balfour took particular care to endeavour to secure a benefit for the estate as a whole when letting out property on the estate. He appears to have preferred to let, where at all possible, to estate employees or to individuals who possessed a skill or talent which might be of benefit to the estate whether on a formal or an informal footing. Other facets of the business activities carried on at the Estate are plainly positive and active trading activities as opposed to the more passive notion of holding investments. I therefore have no difficulty in rejecting the argument that the business carried on at the Estate (at any time after 1999-it being unnecessary to consider the position before then) was wholly or mainly making or holding investments. In these circumstances, it is unnecessary to make any kind of quantitative analysis of the various activities.
41. Even if one assumes that the letting of the 26 houses and cottages ( identified at paragraph 28 of the Joint Statement of Agreed Facts; and which unlike the let farms do not attract agricultural property relief) constitutes making or holding investments, I am not satisfied that the estate management and farming activities managed by Lord Balfour as his single composite estate management business immediately prior to the formation of the November 2002 partnership (to use the language of the HMRC Notice of Determination) was a business which consisted wholly or mainly of making or holding investments. The estate management business did not, on any view, consist wholly of making or holding investments.
42. As for whether such business consisted mainly of holding or making investments, I consider that it is necessary to establish what the preponderance of business activity is. This can be looked at from the point of view of a variety of relevant factors in an attempt to create an overall picture, to see whether that picture shows that the business activities on the Estate consisted mainly of making or holding investments. These factors include turnover, profit, expenditure and time spent by everyone involved in the carrying on of the various business activities. Unless every hour of every employee, every item of income and expenditure is identified and analysed and overlapping activities taken into account, no precise quantitative assessment can be made. Such an assessment over any reasonable period is probably impossible to achieve and ultimately the matter must be assessed on the basis of such evidence as the parties have been able to lead or point to. With incomplete evidence as we have here, and probably in most cases, it is a matter of more general assessment and impression as to where the preponderance of business activity lies.
This means looking at the activities being carried on at the estate in the round (an approach emphasised by the Court of Appeal in IRC v George 2003 at 152c). My impression is that the management of a landed estate such as Whittingehame Estate even where a significant amount of the income is derived from letting income is, overall, mainly a trading activity. That is where the preponderance of activity and effort lies. Bidwells were engaged as estate managers; most estates of the type under discussion are heavily based on farming and to some extent on forestry and woodland management and related shooting interests. The letting side was ancillary to the farming, forestry, woodland and sporting activities. The farming activities, albeit they include agricultural tenancies, occupied by far the greater area of the Estate. (see for example Farmer v IRC 1999 STC (SCD) 321, especially at paragraphs 6, 22 40, 41, 43, 47, 52-54 ).
43. In these circumstances, I consider that the business activities carried on at Whittingehame Estate do not consist wholly or mainly of making or holding investments. Section 105(3) is not engaged.
Entail Amendment (Scotland) Act 1848
44. Mr Thomson submitted that the Judgment of the House of Lords dated 10/11/02 (a copy of the Extract Decree has been lodged as a production) in the appeal to the House of Lords (see Earl of Balfour Ptr 2002 SLT 1385) was not retrospective. I do not recollect suggesting that it was. In these circumstances, I have proceeded, in HMRC's favour, on the basis that the Interlocutor does not have retrospective without actually deciding the point.
Summary
45. From at least about 1999 until November 2002 the estate management and farming activities carried on at Whittingehame Estate were managed as a single composite business. The 2002 partnership replaced these estate management and farming activities. The assets of the Estate in issue in these proceedings were used in that business. All the property replaced by the capital of the 2002 partnership was relevant business property immediately before (and for a period of more than two years before Lord Balfour's death) it was so replaced. Lord Balfour's interest in that partnership is relevant business property within section 105(1)(a), and attracts the relief set forth in section 104(1)(a).
Disposal
46. The Notice of Determination dated 4th September 2008 is quashed in terms of section 224(5) of the 1984 Act.
Tribunal judge: J Gordon Reid QC F.C.I.Arb
Release date: 14 May 2009
1 Year ended 31/3/00 for WFC and the Trust
2 Nine months to 31/12/00 for WFC and year to 31/3/01 for the Trust
3 Year ended 31/12/01 for WFC and year to 31/3/02 for the Trust
Period from 1//02 to 10/11/02 for WFC and 1/4/02 to 10/11/02 for the Trust
Articles
Co-habitation not recognised in inheritance
LNB News: 17/06/2009 37
Published date: 17 June 2009
Jurisdiction: UK
Related legislation: Inheritance (Provision for Family and Dependants) Act 1975
Related cases: Baynes v Hedger and others [2009] EWCA Civ 374, [2009] All ER (D) 50 (May)
Abstract: A recent Court of Appeal decision illustrates the courts’ hostility towards claims under the Inheritance Act by adult children who are well able to look after themselves, says Patrick Hamlin, partner at Withers. Lucy Trevelyan reports.
Analysis: UK courts appear unwilling to provide adults—who should be able to earn their own living—with considerable provision out of a deceased's estate, says Patrick Hamlin, partner at Withers.
His comments follow the Court of Appeal’s ruling in Baynes v Hedger and another [2009] EWCA Civ 374, that Hetty Baynes, ex-wife of film-maker Ken Russell, could not claim more than the £2500 left to her in her godmother’s will.
Baynes had claimed under the Inheritance (Provision for Family and Dependants) Act 1975 that she was entitled to more than £800,000 of the estate of Mary Spencer Watson, on the grounds that she had been 'maintained' by her godmother.
Hamlin explains that under English law, subject to basic exceptions, you may leave your estate to whomever you wish. “The 1975 Act spells out the exceptions whom you cannot deprive of reasonable financial provision. These include a surviving spouse, children and dependents,” he says.
In this case, the claimant was not a child of the deceased within the meaning of s 1(1) c of the Act, nor could she be considered a child of the family under s 1(1) d as although the deceased occupied a quasi-maternal position towards her, the deceased died a spinster.
Hamlin says: “There was no family unit within which the claimant could claim to be a child of the family as required by sub section (d). Her only chance of successfully obtaining a share in the estate under the Act was by claiming she was a dependent of the deceased. To make this out, s 1(1) e requires that such a person was immediately before the death of the deceased being maintained, either wholly or partly, by the deceased.”
The High Court ruled that Baynes was being maintained by the deceased and could therefore bring a claim. It also held, however, that the £2500 legacy made in the will was sufficient financial provision.
Says Hamlin: “The Court of Appeal held that the High Court was wrong to say she was a dependent because the deceased had never assumed responsibility for her maintenance. According to the appeal court, therefore, she was not in a position even to bring a claim. It added that even if she had been, it would still have dismissed it because the legacy of £2500 was reasonable.”
Considerable sums of money had been given by the deceased to the claimant during the deceased's lifetime. Hamlin says: “As a matter of law, the Court of Appeal were clearly right to insist there be some assumption of responsibility by the deceased during her lifetime for the maintained of the claimant. There was no evidence of this.”
Both the High Court and the Court of Appeal, says Hamlin, considered the claimant had to some extent taken advantage of the deceased by periodically demanding large sums of money. “Leaving aside the law, the judges clearly did not feel the claimant was a very meritorious case.”
He adds: “The courts do seem unwilling to provide adults who should be able to earn their own living with considerable provision out of a deceased's estate. It is otherwise, of course, if the claimant is disabled or for some other reason has difficulty earning a living wage.”
Hamlin says that as a matter of policy what may be viewed as controversial is the provision in s 1(1) d concerning a "child of the family".
“A claimant cannot come within this provision unless the deceased was party either to a marriage or a civil partnership at the time the claimant was said to be treated by the deceased as a child of the family. A couple who simply co-habit cannot treat a child as a child of the family for the purposes of the statute.
“This potential criticism may be heightened by the fact there was some evidence that the deceased had during her lifetime been in a same-sex relationship co-habiting with her partner,” he adds.
Will-writers may face regulation?
LNB News 08/06/2009 51
Published date: 8 June 2009
Jurisdiction: UK
Related digests: Probate: The end of probate as we know it? (LNB News 02/03/2009 53)
Abstract: As non-solicitor will-writers look to be facing regulation, Patrick Hamlin wonders why they have escaped scrutiny for so long. Lucy Trevelyan reports.
Analysis: His comments follow the news that Lord Hunt of Wirral—the peer tasked by the Law Society to review legal regulation—is to consider whether regulation should be extended to will-writing and probate in the next phase of his consultation.
Speaking at a road show in Manchester following the release of his preliminary report last month, Lord Hunt said: “You get people working from an offshore island persuading someone to go down the cheap route and after death it’s found to be all wrong and there’s no remedy … the same basic regulation should apply.”
Hamlin says a badly drafted will can cause all sorts of problems and that it is “a mystery” why will writers are not regulated in some way. He says: “The beneficiaries may be incorrectly identified so that the true beneficiaries miss out. The property intended to pass by the will may not be adequately described so there is uncertainly as to what property devolves under the will. The residuary estate may not be properly dealt with so that some items are left to pass on intestacy, contrary to the wishes of the testator.”
Other drafting faults, he says, can cause inheritance tax to be payable where none should be. “This can happen, for example, if proper use is not made of the nil rate band.”
He explains that anyone can draft a will and charge for it, provided they do not hold themselves out as being a solicitor when they are not. “Non-solicitor will writers do not need any qualifications. Some of them may be legal executives but there is no requirement for them to hold such qualifications.”
He says that although in putting forward the view that solicitors are better placed to draft wills for their clients, solicitors have an obvious conflict of interest, it does not mean such a statement is automatically wrong.
He says: “A solicitor is properly trained in a wide range of legal subjects and is best equipped to understand the problems of the client. Sometimes issues to do with wills are connected with divorce and issues that an unqualified will writer would not be aware of. There are obviously also serious tax implications which can decimate an estate if not properly handled.”
Another benefit to using a solicitor to draft a will, he says, is that if a solicitor is negligent then s/he can be sued. By contrast, redress is difficult to obtain against non-solicitors, unless they are guilty of actual fraud. “All solicitors have to hold compulsory professional indemnity insurance to cover the amount of damages which a court might award. They are also subject to regulation by the Solicitors Regulation Authority (SRA). Negligence actions may be brought against solicitors, not only by the executors or administrators of the deceased's estate, but also by disappointed beneficiaries who have lost their entitlement because of a badly drafted will.”
He does not feel it would be difficult to have a basic system of regulation involving basic qualifications—such as the relevant papers in the Institute of Legal Executives exam and some compulsory insurance—with the Office of Fair Trading or the Financial Services Authority possibly the best bodies to police it, rather than the SRA.
“I see no great difficulty with that kind of regulation,” he says. “It could be funded by a levy on those applying to become regulated will writers.”
He concedes, however, that unqualified will writers—“who are presumably attractive because they are cheap”—could become more popular if some scheme of regulation is introduced. “Members of the public who would not at present instruct such a person to draft their will may be encouraged to do so because of the regulatory regime,” he adds.
Probate market to open up to ACCA members
LNB News 04/06/2009 44
Published date: 4 June 2009
Jurisdiction: England & Wales; Scotland
Related legislation: Solicitors Act 1974; Legal Services Act 2007
Abstract: Members of the Association of Certified Chartered Accountants (ACCA) will be able to take on probate work, previously a reserved activity for solicitors, later this year. John Davies, ACCA’s head of business law talks to Grania Langdon-Down.
Analysis: The Association of Certified Chartered Accountants (ACCA) is due to receive approved body status in August so its members can obtain grant of probate on behalf of clients, something previously only solicitors could undertake.
Davies explains: "This move goes back to a liberalizing measure in the Legal Services Act 2007 which allows professionals other than solicitors to do probate work for remuneration. Up until that point it was a reserved activity for solicitors under the Solicitors Act 1974."
So far, only the Institute of Chartered Accountants in Scotland (ICAS) has successfully achieved approved body status. Its sister organization in England and Wales, the ICAEW, had been seeking similar status but decided that the prospect of being liable for a share of the start-up costs, and contributions to, the Legal Services Board, as well as being subjected to ‘onerous’ regulation, was too great a price to pay.
Davies says: "The ICAEW took the view that there wasn’t going to be a sufficient level of interest from their members to make the effort worthwhile. However, we have taken a different view because of the interest among our members. It is a way of providing an opportunity for them to get involved in this kind of work and, at the moment, we are comfortable with the eligibility criteria."
The ACCA is the second largest accountancy body after the ICAEW with 132,000 members. Formed in 1904, it differs in two ways: firstly its members conduct examinations and train accountants outside the UK and secondly, it allows members to train not just in public practice but also in business and in the public sector.
"When this option was first suggested," Davies continues, "we consulted with our members in public practice and the response was very positive. To be approved, we had to satisfy the Ministry of Justice (MoJ) that we would only authorize those members who were competent to do the work. So we have had to make sure that members will have access to all the necessary training. We then had to satisfy the MoJ that we had procedures for imposing disciplinary controls on members if they proved incompetent.
"It’s hard to know how many members are going to take the plunge. They have to weigh up the effect that getting involved in probate work might have on existing relationships with law firms. Many have mutually beneficial relationships with solicitors, referring work to each other, and there might be some potential for difficulties if solicitors see this as treading on their traditional territory.
"There is also the question of the resources they will have to invest in training and the risks involved in getting involved in an area in which they may not be 100% confident. There could be issues of personal liability if things go wrong.
"I think that where members do get involved, it won’t be a material aspect of their professional services but an additional one they will offer clients and so this won’t be an immediate threat to solicitors."
Other professional bodies seeking to build up work in this area are the Council for Licensed Conveyancers, which has started training and licensing probate practitioners, and the Institute of Legal Executives, which is working on its application.
Growing green shoots
LNB News 21/05/2009 31
Published date: 21 May 2009
Jurisdiction: UK
Related digests: LNB News 28/04/2009 21
Abstract: Farmers got the answer they wanted in the budget on Agricultural Property Relief. Julie Hutchison, head of estate planning at Standard Life, explains the background to Neasa MacErlean.
Analysis: Tax advisers to the farming sector will be heaving a sigh of relief after seeing the Budget announcement that the government is extending the application of Agricultural Property Relief (APR) throughout the European Economic Area (EEA). The relief is highly valuable to farmers, giving them relief from Inheritance Tax at rates of 100 or 50%.
Under pressure from the European Commission not to restrict APR just to the UK, the government had the practical choice of broadening it to cover all of the EEA or to drop it altogether. Either route would have satisfied the principle the Commission was upholding: equal treatment throughout the whole zone. Although most farmers themselves were probably not fully aware of the depth of the debate, the subject had become a major campaigning issue for lobbying groups in January this year when the Commission put the UK government on notice that its policy had to change.
Julie Hutchison is pleased that the government has taken this path (which also applies to Woodlands Relief), and also that it will be easy to implement. The change "will be quite straightforward," she says. It came in with immediate effect from Budget day, 22 April. And for those farmers who have bought farming land and farm houses in the EEA, it makes life easier for them in that they can rely on APR rather than trying to use Business Property Relief (an option which could, in practice, force them to set up company or joint venture structures rather than simply owning the property directly). She says: "It makes it a more genuine option to own the land rather than coming up with another arrangement," she says.
It was probably the lobbying power of the farming community in the run-up to a general election that swung the issue in the government, according to Hutchison. Although Business Property Relief could have been used instead in some cases by farmers to protect their assets from inheritance tax, some families might not have been able to use it. Hutchison believes that IHT would have been applied in many more cases, and that farms would have to have been sold to meet the 40% tax (which applies to taxable assets above the current threshold, per person, of £325,000). In 2005/06 there were 1977 claims for APR. She says: "This is an interesting example of how European law is a key consideration in our tax system now. The response of the government has been a pragmatic one which favours the tax payer."
In a parallel issue, the government decided to end the furnished holiday letting rules from April 2010 because it again had to chose between extending them to all property in the EEA or to end them. Until April 2010, people carrying out such lettings can claim for properties across Europe (and they can make an arrears claim back to 2006/07 so long as they get the claim in before the end of July). But Patrick King of MacIntryre Hudson thinks there could be a backlash over this from the rural community, long-time providers of furnished holiday lettings. He says: "While the Government has lectured rural communities on the need to diversify their income streams, it is now punishing one of the most common means of doing this available. It is certainly difficult to see from what angle this proposal is fair, or helps the communities that the government purports to champion."
How do you leave yours?
LNB News 16/06/2009 12
Published date: 15 June 2009
Author: Lauren Parker
Journal name: Trusts and Estates Law & Tax Journal
Journal date: 1 March 2009
Journal citation: Trusts and Estates Law & Tax Journal, March 2009, 25
Jurisdiction: England; Wales
Abstract: Trusts and Estates Law & Tax Journal, March 2009: The alleged Cadbury dispute provides the opportunity to summarise issues that may affect wills of high-net-worth individuals
Summary: Explains, more than two years after his death, the wills of the main feir to the Cadbury chocolate empire are leaving a bitter taste. Peter Cadbury, known as "The Cad", apparently left at least two wills in different jurisdictions. It is understood that probate may have granted in respect of Cadbury's English will, but probate of his Bahamian will is yet to be finalised.
Journals
Care and attention
LNB News 16/06/2009 13
Published date: 15 June 2009
Author: Merie Sabey
Journal name: Trusts and Estates Law & Tax Journal
Journal date: 1 March 2009
Journal citation:Trusts and Estates Law & Tax Journal, March 2009, 21
Jurisdiction: England; Wales
Abstract: Trusts and Estates Law & Tax Journal, March 2009:
Summary: Examines the risks associated with post-death variations in the second of two articles on the subject of risk management. The first article dealt with risks associated with post-death rearrangements and considered a number of traps and pitfalls that can be encountered when preparing deeds of variation. More specifically, this second article looks at some of the risks inherent in other methods of varying a will or altering the operation of the intestacy rules following death.
The neglected regime
LNB News 12/06/2009 11
Published date: 12 June 2009
Author: Ray Magill
Journal name: Taxation
Journal date: 11 June 2009
Journal citation: Taxation, 11 June 2009, 588
Jurisdiction: England; Scotland; Northern Ireland; Wales
Abstract: Taxation, 11 June 2009: Many taxpayers may have missed the chance to make an election.
Summary: HMRC need to update their guidance on the pre-owned asset regime. HMRC need to review their advice on pre-owned assets, both in he tax return guide and on the dedicated website, and be prepared to admit late elections. Practitioners need to identify cases where action is required.
Keeping it in the family
LNB News 08/06/2009 46
Published date: 8 June 2009
Author: Malcolm Skinner
Journal name: New Law Journal
Journal date: 5 June 2009
Journal citation: 159 NLJ 822
Jurisdiction: England; Wales
Related legislation: Inheritance (Provision for Family and Dependants) Act 1975
Abstract: New Law Journal, Issue 7372: Prudent for the practitioner to consider the guidelines with a view to satisfying as many of them as he can in the affidavit.
Summary: Outlines the time limit aspects of procedure relating to the Inheritance (Provision for Family and Dependants) Act 1975. A Grant is not deemed to have been first taken out if it is limited to settled land or to trust property. Similarly a Grant limited to real or personal estate is ignored unless a grant limited to the remainder of the estate has already been made or is made at the same time.
Wills and probate: Compelling intestacy?
LNB News 19/05/2009 18
Published date: 18 May 2009
Author: Michael Tringham
Journal name: New Law Journal
Journal date: 15 May 2009
Journal citation: 159 NLJ 701
Jurisdiction: England; Wales; European Union; France
Abstract: New Law Journal, Issue 7369: Does the story of Dorset farmer David Cooper present the case for compulsory intestacy?
Summary: Unravels the world of contentious probate. David Cooper was in effect kidnapped in his own home when Sonia Crabb and Tony Junge moved into Hardings Farm near Gillingham with their five children. Elsewhere, the French National Assembly has voted to recognise the legal status of foreign civil partnerships between same-sex couples registered in other EU countries.
15. There was a composite insurance policy covering the whole of the Estate. The insurance premium was apportioned between Whittingehame Farming Company and the Whittingehame Estate Trust prior to 10 November 2002.
16. In December 1999 Bidwells, Property Consultants, 5 Atholl Place, Perth, were appointed by Lord Balfour to take over the factoring/management of Whittingehame Estate.
17. Bidwells invoiced Whittingehame Farming Company and Whittingehame Estate Trust separately.
18. In November 2003 Messrs Bidwells produced a report and valuation in respect of Whittingehame Estate. Appendix 4 thereof provided a schedule of cottages and other premises on the Estate, 28 in number. The first 26 correspond to those cottages identified in a schedule produced by the District Valuer, elsewhere herein described. In respect of those 26 cottages and other premises the Bidwells' schedule is true and accurate as to the property identified, the commencement of letting, the type of letting, the rent per annum as at the date stated, the review date and the tenant.
19. On 6 November 2002 the House of Lords declared the deceased to be the fee simple proprietor of the heritable estate hitherto treated as Trust heritage, pursuant to section 47 of the Entail Amendment (Scotland) Act 1848.
20. On 16 February 2003 by written agreement the deceased entered into a partnership with Andrew Michael Brander. The effective date of commencement of that partnership was backdated to 10 November 2002. The agreement is produced.
21. The partnership agreement of 16 February 2003 was to the effect that the partnership name would be Whittingehame Farming Company.
22. The partnership agreement provided for the introduction of initial capital into the business on the basis that (a) the heritable property comprising the whole of Whittingehame Estate belonging to the deceased was contributed and credited to Partnership Capital Account A, and belonged to the deceased; and (b) the capital of the operation previously known as Whittingehame Farming Company, one half having been gifted to the said Andrew Michael Brander by the deceased, was contributed equally by the two and credited to Partnership Capital Account B, and belonged to them equally.
23. With effect from 10 November 2002 the capital value of the whole heritable estate of Whittingehame Estate was treated as a fixed asset of Whittingehame Farming Company in the partnership accounts, its initially stated value being £3 million.
24. With effect from 10 November 2002 the capital introduced to Partnership Capital Account B was £198,117, this being the closing net assets balance represented by the capital and current accounts in the Whittingehame Farming Company accounts for the period to 10 November 2002.
25. After 10 November 2002 all non-heritable property of the Estate Trust remained in the Trust
26. The list of properties owned by Whittingehame Farming Company, being for the avoidance of doubt the partnership between the deceased and Mr Brander, as at the date of death is described in the valuation report by Bidwells that is produced. A return was made to the Inland Revenue Capital Taxes Office in respect of certain property and it is produced. The said return gave suggested valuations for the various properties comprising the Estate on an open market value basis.
27. By letter of 12 July 2005 the District Valuer intimated agreement in respect of the various properties. In relation to items a-f parties are agreed on the basis set out in the said letter, but those matters form no part of the subject matter of the present appeal. Items h and i do not form part of the subject matter of the present appeal.
28. In the said letter of 12 July 2005 the District Valuer confirmed agreement of an open market value for item g, being 26 houses and cottages, 23 of which were let at the date of the deceased's death, in the sum of £2,818,000. He provided a schedule to the letter which, inter alia identified the 26 houses and cottages comprising item g. The schedule is accurate as to the identification of those properties. Parties are agreed as to that open market value for item g. The treatment of this property for inheritance tax purposes is at the heart of the present appeal.
12. In the light of the oral and documentary evidence, I make the following additional findings-in-fact:-
29. Whittingehame Estate, which extends to about 771.85 hectares (1907.25 acres), is a low ground agricultural estate in East Lothian, with a historic Tower House dating from the late fifteenth century. It was acquired by the Balfour family in about 1817 and then extended to some 10,000 acres. Large parts of the estate had to be sold in the 1930s and the 1960s to pay estate duty. Before Lord Balfour's death there were two in-hand farms (Whittingehame Mains Farm and Eastfield Farm), three let farms (on secure agricultural tenancies), some 26 let houses and cottages (mainly let on short assured tenancies), and two sets of business premises. The in-hand farms at Whittingehame Mains and Eastfied extend to about 269 hectares. The three let farms at Papple, Overfield and Luggate extend to about 371 hectares. There are also policy parks (let on a seasonal basis) and valuable sporting rights attached to the Estate.
30. The in-hand farms the policy parks, and the woodlands extend to about 393.6 hectares while the let farms extend to about 371 hectares.
31. The first Earl of Balfour's Trust Disposition and Settlement provided inter alia as follows:-
"IN THE SEVENTH PLACE, With regard to the whole rest and residue of my means and estate heritable and moveable, real and persona, wherever the same may be situated, I direct my Trustees to .......pay or apply the whole nett revenue or income thereof for behoof of the following series of heirs .... each for his or her liferent use allenarly videlicet:- My brother ............... whom failing .......... in fee, and that in the manner for the purposes, with the faculties and subject to the powers conferred by me and after expressed: (First) I hereby declare that all of the liferents successively before provided shall be for alimentary use only, and the respective rights and interests shall not be assignable nor affectable by the debts or deeds of the liferenters or the diligence of creditors: (Second) It is my wish and intention and I direct my Trustees that my said brother Gerald .......shall be entitled to the whole past due and current rents feuduties and other profits of my landed estates without reference to the crops or years for which they may be payable as if such liferenter were absolute proprietor..........
(Third) I desire and direct my Trustees to put my said brother Gerald .........into the personal occupancy and liferent use and possession, not only of my landed estates of Whittingehame and others in Scotland............And I desire and direct my Trustees as far as possible consistently with the terms of this Trust to confer upon my said brother Gerald ..... all the rights, powers and privileges that are conferred by law upon liferenters my wish and intention being that the successive liferenters should have the same rights, powers and privileges and that under the same obligations as if I had conveyed the said lands and estates in Scotland ......... directly to them in liferent in their order successively: and without prejudice to the foresaid rights, powers and privileges but in addition thereto I authorise my Trustees to confer upon each of the successive liferenters power to open up and work minerals and to let the subjects liferented including such minerals and that on lease at a fair rent, but without grassum or other consideration for granting such lease other than the rent or royalties and not exceeding the periods following videlicet:- In the case of (One) Agricultural subjects, nineteen years: (Two) Minerals....(Three) the Mansion House.............. and all other house property furnished or unfurnished... Ten years: and (Four) Shootings and fishings, Ten years: Declaring that it shall be the duty of my Trustees to see that the buildings, fences, and others on the said estates ..... are kept by the successive liferenters in proper repair and the whole buildings .......... duly and fully insured in the name of my Trustees........
(Fourth) Whereas I have at present on hand and in my own occupancy the Home Farm of Whittingehame (which includes Overfield Farm) it is my wish and desire that means should be provided to permit of the same being carried on as I have been in use to do, therefore I hereby confer upon my Trustees full power and authority with the consent of the liferenter for the time to carry on the Home Farm (including Overfield Farm) or to let the same or any part thereof for such term or terms as they think fit, in which latter case the whole stock, crop and implements of husbandry on said farm including as aforesaid, or such part thereof as may be necessary shall be realised and disposed of and the nett proceeds shall fall into the residue of my means and estate and be invested and managed by my Trustees as part thereof, and any loss incurred in the course of carrying on or managing the said farm shall be borne by the liferenter for the time, and all profit shall belong to him or her as his or her own property........."
Lord Balfour
32. Lord Balfour in his daily business activities made no demarcation between the Whittingehame Farming Company ("WFC") and the Estate. Lord Balfour held keys for all properties on the Estate. Much of Lord Balfour's correspondence was written on notepaper simply headed Whittingehame Estate Office. That correspondence also shows that Lord Balfour met the costs of running the Estate with, generally, no particular distinction being drawn between capital improvements and repairs After George Thomson's death, Lord Balfour ran the in-hand farms on a contract farming basis; the contract farming agreement was between Lord Balfour and the contractor. Lord Balfour's own view appears to have been that before the Trust came to an end in 2002 everything was run as one business.
33. There was no strong demarcation for staff either. Lord Balfour handled all matters relating to staff. Lord Balfour's secretary dealt with all aspects of the Estate and the WFC. Another illustration of this lack of any clear line of division is the employment of David Young who was a general worker on the Estate from at least 1968 until his death in 1997. PAYE records reveal that his employer was Lord Balfour but his wages were paid from the trust funds of the Estate and not WFC. There was no apportionment of his salary. The gamekeeper was employed by Lord Balfour. His responsibilities must have ranged across the whole estate and certainly beyond the in-hand farms.
34. WFC was concerned solely with in-hand farming which included rent from cottages on the two in-hand farms, until 2001 when the income from the cottage rents began to be remitted to the Estate.
The Trustees
35. Robert Balfour is a chartered surveyor and second cousin of Lord Balfour. Mr Balfour was a trustee under the 1923 Trust Deed from the mid 1980's. Mr Balfour's father had been a Trustee from the outset. The Trustees had no active role to play as Lord Balfour occupied and ran the whole Estate as if he were the owner; in particular, Lord Balfour dealt with the letting of residential properties on the Estate through Anderson Strathern, solicitors, and before them, Strathern and Blair; Mr Balfour as trustee, was never called upon to sign any lease; the Trustees were not authorised signatories on any bank account; the income and expenditure of the Estate were dealt with by Lord Balfour; Lord Balfour dealt with all forestry work; property disposals were instigated by Lord Balfour; Lord Balfour's wishes on estate matters, which Lord Balfour regarded as his own business, were invariably acceded to by the Trustees. Very few meetings of the Trustees took place. Trust Accounts were issued to the Trustees once they had been approved by Lord Balfour; these accounts did not include the in-hand farming operations; The correspondence produced also shows that the Trust solicitors in effect took instructions from Lord Balfour rather than the Trustees. The Trustees became involved in formal or administrative matters only.
Bidwells
36. Bidwells were appointed in 1999. They provided inter alia a book keeping service, preparing annual accounts and VAT returns; they prepared separate annual accounts for the Estate and the WFC; there were separate cheque books and thus accounts for WFC and the Estate; Lord Balfour was an authorised signatory on both accounts. Mr Donald produced an analysis of annual accounts which showed that income from crop and cattle sales, subsidies, grazing and potato lets, cottage and some let farms and some wayleaves was received by WFC; and income from some let farms, some cottages, woodlands and some wayleaves was paid to the Estate; there was a composite insurance policy for the whole Estate; the premium was apportioned between the WFC and the Estate. Bidwells carried out the day to day management and reported to Lord Balfour on all matters (letter of appointment dated 22/12/99); they managed the woodlands, the let housing stock and the agricultural tenancies although Lord Balfour was still involved in various aspects of these activities; and instructed various property repairs and maintenance on the Estate.
37. Income from the in-hand farming operations exceeded the income generated by the letting of property (cottages etc). The majority of cottage lets were on short assured tenancies, as already noted. Mr Donald spent the bulk of his time on the farming operations rather than on the letting side. He understood the whole operation on the Estate to be Lord Balfour's business. The balance of labour expended by employees on the Estate related to farming operations rather than the lettings. If one took into account management time, the balance was the other way round. However, in 2001 and 2002 Bidwells spent a little over three quarters of their time on farming and forestry matters and a little less than one quarter on property letting and maintenance matters. They rendered separate fee notes to the WFC and to the Estate
38. WFC was concerned solely with in-han12d farming which included rent from cottages on the two in-hand farms, until 2001 when the income from those cottage rents went to the Estate. The following Table summarise trading and letting income between 2000 and 2002.
38. WFC was concerned solely with in-han12d farming which included rent from cottages on the two in-hand farms, until 2001 when the income from those cottage rents went to the Estate. The following informationa summarises trading and letting income between 2000 and 2002.
Year: 2001
Total trading turnover: £121.566 of which £304 was attributed to Woodlands Income and Treated as Trust Income payable To the Trustees
Year: 2001
Letting turnover: £67,009 of which £64,026 was attributed to cottage, farm and other rents and wayleaves and treated as trust income payable to the Trustees; the balance being grazing income cottage and farm rents and wayleaves paid to the WFC
Year: 20012
Total trading turnover: £119,804 of which £3,585 was treated as such Trust income
Letting turnover: £82,027 of which £76,520 was treated as Trust income
Year: 20023
Total Trading Turnover: £101,966 of which £1,187 was treated as such Trust Income
Letting turnover: £95,266 of which £78.722 was treated as Trust Income
Year: Nov 2002?
Total Trading Turnover: £119,364 of which £196 was treated as such Trust Income
Letting Turnover: £96,248 of which £75,448 was treated as Trust Income
General
Wholly or mainly making or holding investments?
39. The carrying on of a business which consists wholly of making or holding investments might suggest a relatively passive activity which is designed to achieve investment or capital gain and/or receive what may be described as passive income or return on capital. Once the investment is made the return, if any, will follow generally because of the soundness of the investment and the state of the market in which the particular investment is made rather than the continuing efforts of the owner of the funds or property invested. A trading activity usually involves the buying and/or selling of goods or the provision of services or a mixture of both.
The extent of profit from the activity directly depends on the effort, and the efficiency and quality of effort put into the business by its owner and employees. There are no doubt grey areas where the business of making or holding investments and trading activities meet or overlap. Be that as it may, a different view has been expressed in Martin v IRC 1995 STC (SCD) 5, and Burkinyoung v IRC 1995 STC (SCD) 29. The reasoning in that case is cogent. However, a broader approach was taken by the Court of Appeal in IRC v George 2003 STC 147 at paragraph 60 and 61
40. In the circumstances as I have found them to be in the present proceedings, to suggest that the activities carried on at Whittingehame Estate comprised wholly or mainly the making or holding of investments is to belittle the efforts required properly and profitably to manage the various components of an estate of this nature. Even the residential letting aspect of the activities required Lord Balfour's experience, business acumen and careful planning. They are an important component in the overall business; the cottages were historically part of the overall farming enterprises or housed full time estate workers.
On the evidence, it is apparent that Lord Balfour took particular care to endeavour to secure a benefit for the estate as a whole when letting out property on the estate. He appears to have preferred to let, where at all possible, to estate employees or to individuals who possessed a skill or talent which might be of benefit to the estate whether on a formal or an informal footing. Other facets of the business activities carried on at the Estate are plainly positive and active trading activities as opposed to the more passive notion of holding investments. I therefore have no difficulty in rejecting the argument that the business carried on at the Estate (at any time after 1999-it being unnecessary to consider the position before then) was wholly or mainly making or holding investments. In these circumstances, it is unnecessary to make any kind of quantitative analysis of the various activities.
41. Even if one assumes that the letting of the 26 houses and cottages ( identified at paragraph 28 of the Joint Statement of Agreed Facts; and which unlike the let farms do not attract agricultural property relief) constitutes making or holding investments, I am not satisfied that the estate management and farming activities managed by Lord Balfour as his single composite estate management business immediately prior to the formation of the November 2002 partnership (to use the language of the HMRC Notice of Determination) was a business which consisted wholly or mainly of making or holding investments. The estate management business did not, on any view, consist wholly of making or holding investments.
42. As for whether such business consisted mainly of holding or making investments, I consider that it is necessary to establish what the preponderance of business activity is. This can be looked at from the point of view of a variety of relevant factors in an attempt to create an overall picture, to see whether that picture shows that the business activities on the Estate consisted mainly of making or holding investments. These factors include turnover, profit, expenditure and time spent by everyone involved in the carrying on of the various business activities. Unless every hour of every employee, every item of income and expenditure is identified and analysed and overlapping activities taken into account, no precise quantitative assessment can be made. Such an assessment over any reasonable period is probably impossible to achieve and ultimately the matter must be assessed on the basis of such evidence as the parties have been able to lead or point to. With incomplete evidence as we have here, and probably in most cases, it is a matter of more general assessment and impression as to where the preponderance of business activity lies.
This means looking at the activities being carried on at the estate in the round (an approach emphasised by the Court of Appeal in IRC v George 2003 at 152c). My impression is that the management of a landed estate such as Whittingehame Estate even where a significant amount of the income is derived from letting income is, overall, mainly a trading activity. That is where the preponderance of activity and effort lies. Bidwells were engaged as estate managers; most estates of the type under discussion are heavily based on farming and to some extent on forestry and woodland management and related shooting interests. The letting side was ancillary to the farming, forestry, woodland and sporting activities. The farming activities, albeit they include agricultural tenancies, occupied by far the greater area of the Estate. (see for example Farmer v IRC 1999 STC (SCD) 321, especially at paragraphs 6, 22 40, 41, 43, 47, 52-54 ).
43. In these circumstances, I consider that the business activities carried on at Whittingehame Estate do not consist wholly or mainly of making or holding investments. Section 105(3) is not engaged.
Entail Amendment (Scotland) Act 1848
44. Mr Thomson submitted that the Judgment of the House of Lords dated 10/11/02 (a copy of the Extract Decree has been lodged as a production) in the appeal to the House of Lords (see Earl of Balfour Ptr 2002 SLT 1385) was not retrospective. I do not recollect suggesting that it was. In these circumstances, I have proceeded, in HMRC's favour, on the basis that the Interlocutor does not have retrospective without actually deciding the point.
Summary
45. From at least about 1999 until November 2002 the estate management and farming activities carried on at Whittingehame Estate were managed as a single composite business. The 2002 partnership replaced these estate management and farming activities. The assets of the Estate in issue in these proceedings were used in that business. All the property replaced by the capital of the 2002 partnership was relevant business property immediately before (and for a period of more than two years before Lord Balfour's death) it was so replaced. Lord Balfour's interest in that partnership is relevant business property within section 105(1)(a), and attracts the relief set forth in section 104(1)(a).
Disposal
46. The Notice of Determination dated 4th September 2008 is quashed in terms of section 224(5) of the 1984 Act.
Tribunal judge: J Gordon Reid QC F.C.I.Arb
Release date: 14 May 2009
1 Year ended 31/3/00 for WFC and the Trust
2 Nine months to 31/12/00 for WFC and year to 31/3/01 for the Trust
3 Year ended 31/12/01 for WFC and year to 31/3/02 for the Trust
Period from 1//02 to 10/11/02 for WFC and 1/4/02 to 10/11/02 for the Trust
Articles
Co-habitation not recognised in inheritance
LNB News: 17/06/2009 37
Published date: 17 June 2009
Jurisdiction: UK
Related legislation: Inheritance (Provision for Family and Dependants) Act 1975
Related cases: Baynes v Hedger and others [2009] EWCA Civ 374, [2009] All ER (D) 50 (May)
Abstract: A recent Court of Appeal decision illustrates the courts’ hostility towards claims under the Inheritance Act by adult children who are well able to look after themselves, says Patrick Hamlin, partner at Withers. Lucy Trevelyan reports.
Analysis: UK courts appear unwilling to provide adults—who should be able to earn their own living—with considerable provision out of a deceased's estate, says Patrick Hamlin, partner at Withers.
His comments follow the Court of Appeal’s ruling in Baynes v Hedger and another [2009] EWCA Civ 374, that Hetty Baynes, ex-wife of film-maker Ken Russell, could not claim more than the £2500 left to her in her godmother’s will.
Baynes had claimed under the Inheritance (Provision for Family and Dependants) Act 1975 that she was entitled to more than £800,000 of the estate of Mary Spencer Watson, on the grounds that she had been 'maintained' by her godmother.
Hamlin explains that under English law, subject to basic exceptions, you may leave your estate to whomever you wish. “The 1975 Act spells out the exceptions whom you cannot deprive of reasonable financial provision. These include a surviving spouse, children and dependents,” he says.
In this case, the claimant was not a child of the deceased within the meaning of s 1(1) c of the Act, nor could she be considered a child of the family under s 1(1) d as although the deceased occupied a quasi-maternal position towards her, the deceased died a spinster.
Hamlin says: “There was no family unit within which the claimant could claim to be a child of the family as required by sub section (d). Her only chance of successfully obtaining a share in the estate under the Act was by claiming she was a dependent of the deceased. To make this out, s 1(1) e requires that such a person was immediately before the death of the deceased being maintained, either wholly or partly, by the deceased.”
The High Court ruled that Baynes was being maintained by the deceased and could therefore bring a claim. It also held, however, that the £2500 legacy made in the will was sufficient financial provision.
Says Hamlin: “The Court of Appeal held that the High Court was wrong to say she was a dependent because the deceased had never assumed responsibility for her maintenance. According to the appeal court, therefore, she was not in a position even to bring a claim. It added that even if she had been, it would still have dismissed it because the legacy of £2500 was reasonable.”
Considerable sums of money had been given by the deceased to the claimant during the deceased's lifetime. Hamlin says: “As a matter of law, the Court of Appeal were clearly right to insist there be some assumption of responsibility by the deceased during her lifetime for the maintained of the claimant. There was no evidence of this.”
Both the High Court and the Court of Appeal, says Hamlin, considered the claimant had to some extent taken advantage of the deceased by periodically demanding large sums of money. “Leaving aside the law, the judges clearly did not feel the claimant was a very meritorious case.”
He adds: “The courts do seem unwilling to provide adults who should be able to earn their own living with considerable provision out of a deceased's estate. It is otherwise, of course, if the claimant is disabled or for some other reason has difficulty earning a living wage.”
Hamlin says that as a matter of policy what may be viewed as controversial is the provision in s 1(1) d concerning a "child of the family".
“A claimant cannot come within this provision unless the deceased was party either to a marriage or a civil partnership at the time the claimant was said to be treated by the deceased as a child of the family. A couple who simply co-habit cannot treat a child as a child of the family for the purposes of the statute.
“This potential criticism may be heightened by the fact there was some evidence that the deceased had during her lifetime been in a same-sex relationship co-habiting with her partner,” he adds.
Will-writers may face regulation?
LNB News 08/06/2009 51
Published date: 8 June 2009
Jurisdiction: UK
Related digests: Probate: The end of probate as we know it? (LNB News 02/03/2009 53)
Abstract: As non-solicitor will-writers look to be facing regulation, Patrick Hamlin wonders why they have escaped scrutiny for so long. Lucy Trevelyan reports.
Analysis: His comments follow the news that Lord Hunt of Wirral—the peer tasked by the Law Society to review legal regulation—is to consider whether regulation should be extended to will-writing and probate in the next phase of his consultation.
Speaking at a road show in Manchester following the release of his preliminary report last month, Lord Hunt said: “You get people working from an offshore island persuading someone to go down the cheap route and after death it’s found to be all wrong and there’s no remedy … the same basic regulation should apply.”
Hamlin says a badly drafted will can cause all sorts of problems and that it is “a mystery” why will writers are not regulated in some way. He says: “The beneficiaries may be incorrectly identified so that the true beneficiaries miss out. The property intended to pass by the will may not be adequately described so there is uncertainly as to what property devolves under the will. The residuary estate may not be properly dealt with so that some items are left to pass on intestacy, contrary to the wishes of the testator.”
Other drafting faults, he says, can cause inheritance tax to be payable where none should be. “This can happen, for example, if proper use is not made of the nil rate band.”
He explains that anyone can draft a will and charge for it, provided they do not hold themselves out as being a solicitor when they are not. “Non-solicitor will writers do not need any qualifications. Some of them may be legal executives but there is no requirement for them to hold such qualifications.”
He says that although in putting forward the view that solicitors are better placed to draft wills for their clients, solicitors have an obvious conflict of interest, it does not mean such a statement is automatically wrong.
He says: “A solicitor is properly trained in a wide range of legal subjects and is best equipped to understand the problems of the client. Sometimes issues to do with wills are connected with divorce and issues that an unqualified will writer would not be aware of. There are obviously also serious tax implications which can decimate an estate if not properly handled.”
Another benefit to using a solicitor to draft a will, he says, is that if a solicitor is negligent then s/he can be sued. By contrast, redress is difficult to obtain against non-solicitors, unless they are guilty of actual fraud. “All solicitors have to hold compulsory professional indemnity insurance to cover the amount of damages which a court might award. They are also subject to regulation by the Solicitors Regulation Authority (SRA). Negligence actions may be brought against solicitors, not only by the executors or administrators of the deceased's estate, but also by disappointed beneficiaries who have lost their entitlement because of a badly drafted will.”
He does not feel it would be difficult to have a basic system of regulation involving basic qualifications—such as the relevant papers in the Institute of Legal Executives exam and some compulsory insurance—with the Office of Fair Trading or the Financial Services Authority possibly the best bodies to police it, rather than the SRA.
“I see no great difficulty with that kind of regulation,” he says. “It could be funded by a levy on those applying to become regulated will writers.”
He concedes, however, that unqualified will writers—“who are presumably attractive because they are cheap”—could become more popular if some scheme of regulation is introduced. “Members of the public who would not at present instruct such a person to draft their will may be encouraged to do so because of the regulatory regime,” he adds.
Probate market to open up to ACCA members
LNB News 04/06/2009 44
Published date: 4 June 2009
Jurisdiction: England & Wales; Scotland
Related legislation: Solicitors Act 1974; Legal Services Act 2007
Abstract: Members of the Association of Certified Chartered Accountants (ACCA) will be able to take on probate work, previously a reserved activity for solicitors, later this year. John Davies, ACCA’s head of business law talks to Grania Langdon-Down.
Analysis: The Association of Certified Chartered Accountants (ACCA) is due to receive approved body status in August so its members can obtain grant of probate on behalf of clients, something previously only solicitors could undertake.
Davies explains: "This move goes back to a liberalizing measure in the Legal Services Act 2007 which allows professionals other than solicitors to do probate work for remuneration. Up until that point it was a reserved activity for solicitors under the Solicitors Act 1974."
So far, only the Institute of Chartered Accountants in Scotland (ICAS) has successfully achieved approved body status. Its sister organization in England and Wales, the ICAEW, had been seeking similar status but decided that the prospect of being liable for a share of the start-up costs, and contributions to, the Legal Services Board, as well as being subjected to ‘onerous’ regulation, was too great a price to pay.
Davies says: "The ICAEW took the view that there wasn’t going to be a sufficient level of interest from their members to make the effort worthwhile. However, we have taken a different view because of the interest among our members. It is a way of providing an opportunity for them to get involved in this kind of work and, at the moment, we are comfortable with the eligibility criteria."
The ACCA is the second largest accountancy body after the ICAEW with 132,000 members. Formed in 1904, it differs in two ways: firstly its members conduct examinations and train accountants outside the UK and secondly, it allows members to train not just in public practice but also in business and in the public sector.
"When this option was first suggested," Davies continues, "we consulted with our members in public practice and the response was very positive. To be approved, we had to satisfy the Ministry of Justice (MoJ) that we would only authorize those members who were competent to do the work. So we have had to make sure that members will have access to all the necessary training. We then had to satisfy the MoJ that we had procedures for imposing disciplinary controls on members if they proved incompetent.
"It’s hard to know how many members are going to take the plunge. They have to weigh up the effect that getting involved in probate work might have on existing relationships with law firms. Many have mutually beneficial relationships with solicitors, referring work to each other, and there might be some potential for difficulties if solicitors see this as treading on their traditional territory.
"There is also the question of the resources they will have to invest in training and the risks involved in getting involved in an area in which they may not be 100% confident. There could be issues of personal liability if things go wrong.
"I think that where members do get involved, it won’t be a material aspect of their professional services but an additional one they will offer clients and so this won’t be an immediate threat to solicitors."
Other professional bodies seeking to build up work in this area are the Council for Licensed Conveyancers, which has started training and licensing probate practitioners, and the Institute of Legal Executives, which is working on its application.
Growing green shoots
LNB News 21/05/2009 31
Published date: 21 May 2009
Jurisdiction: UK
Related digests: LNB News 28/04/2009 21
Abstract: Farmers got the answer they wanted in the budget on Agricultural Property Relief. Julie Hutchison, head of estate planning at Standard Life, explains the background to Neasa MacErlean.
Analysis: Tax advisers to the farming sector will be heaving a sigh of relief after seeing the Budget announcement that the government is extending the application of Agricultural Property Relief (APR) throughout the European Economic Area (EEA). The relief is highly valuable to farmers, giving them relief from Inheritance Tax at rates of 100 or 50%.
Under pressure from the European Commission not to restrict APR just to the UK, the government had the practical choice of broadening it to cover all of the EEA or to drop it altogether. Either route would have satisfied the principle the Commission was upholding: equal treatment throughout the whole zone. Although most farmers themselves were probably not fully aware of the depth of the debate, the subject had become a major campaigning issue for lobbying groups in January this year when the Commission put the UK government on notice that its policy had to change.
Julie Hutchison is pleased that the government has taken this path (which also applies to Woodlands Relief), and also that it will be easy to implement. The change "will be quite straightforward," she says. It came in with immediate effect from Budget day, 22 April. And for those farmers who have bought farming land and farm houses in the EEA, it makes life easier for them in that they can rely on APR rather than trying to use Business Property Relief (an option which could, in practice, force them to set up company or joint venture structures rather than simply owning the property directly). She says: "It makes it a more genuine option to own the land rather than coming up with another arrangement," she says.
It was probably the lobbying power of the farming community in the run-up to a general election that swung the issue in the government, according to Hutchison. Although Business Property Relief could have been used instead in some cases by farmers to protect their assets from inheritance tax, some families might not have been able to use it. Hutchison believes that IHT would have been applied in many more cases, and that farms would have to have been sold to meet the 40% tax (which applies to taxable assets above the current threshold, per person, of £325,000). In 2005/06 there were 1977 claims for APR. She says: "This is an interesting example of how European law is a key consideration in our tax system now. The response of the government has been a pragmatic one which favours the tax payer."
In a parallel issue, the government decided to end the furnished holiday letting rules from April 2010 because it again had to chose between extending them to all property in the EEA or to end them. Until April 2010, people carrying out such lettings can claim for properties across Europe (and they can make an arrears claim back to 2006/07 so long as they get the claim in before the end of July). But Patrick King of MacIntryre Hudson thinks there could be a backlash over this from the rural community, long-time providers of furnished holiday lettings. He says: "While the Government has lectured rural communities on the need to diversify their income streams, it is now punishing one of the most common means of doing this available. It is certainly difficult to see from what angle this proposal is fair, or helps the communities that the government purports to champion."
How do you leave yours?
LNB News 16/06/2009 12
Published date: 15 June 2009
Author: Lauren Parker
Journal name: Trusts and Estates Law & Tax Journal
Journal date: 1 March 2009
Journal citation: Trusts and Estates Law & Tax Journal, March 2009, 25
Jurisdiction: England; Wales
Abstract: Trusts and Estates Law & Tax Journal, March 2009: The alleged Cadbury dispute provides the opportunity to summarise issues that may affect wills of high-net-worth individuals
Summary: Explains, more than two years after his death, the wills of the main feir to the Cadbury chocolate empire are leaving a bitter taste. Peter Cadbury, known as "The Cad", apparently left at least two wills in different jurisdictions. It is understood that probate may have granted in respect of Cadbury's English will, but probate of his Bahamian will is yet to be finalised.
Journals
Care and attention
LNB News 16/06/2009 13
Published date: 15 June 2009
Author: Merie Sabey
Journal name: Trusts and Estates Law & Tax Journal
Journal date: 1 March 2009
Journal citation:Trusts and Estates Law & Tax Journal, March 2009, 21
Jurisdiction: England; Wales
Abstract: Trusts and Estates Law & Tax Journal, March 2009:
Summary: Examines the risks associated with post-death variations in the second of two articles on the subject of risk management. The first article dealt with risks associated with post-death rearrangements and considered a number of traps and pitfalls that can be encountered when preparing deeds of variation. More specifically, this second article looks at some of the risks inherent in other methods of varying a will or altering the operation of the intestacy rules following death.
The neglected regime
LNB News 12/06/2009 11
Published date: 12 June 2009
Author: Ray Magill
Journal name: Taxation
Journal date: 11 June 2009
Journal citation: Taxation, 11 June 2009, 588
Jurisdiction: England; Scotland; Northern Ireland; Wales
Abstract: Taxation, 11 June 2009: Many taxpayers may have missed the chance to make an election.
Summary: HMRC need to update their guidance on the pre-owned asset regime. HMRC need to review their advice on pre-owned assets, both in he tax return guide and on the dedicated website, and be prepared to admit late elections. Practitioners need to identify cases where action is required.
Keeping it in the family
LNB News 08/06/2009 46
Published date: 8 June 2009
Author: Malcolm Skinner
Journal name: New Law Journal
Journal date: 5 June 2009
Journal citation: 159 NLJ 822
Jurisdiction: England; Wales
Related legislation: Inheritance (Provision for Family and Dependants) Act 1975
Abstract: New Law Journal, Issue 7372: Prudent for the practitioner to consider the guidelines with a view to satisfying as many of them as he can in the affidavit.
Summary: Outlines the time limit aspects of procedure relating to the Inheritance (Provision for Family and Dependants) Act 1975. A Grant is not deemed to have been first taken out if it is limited to settled land or to trust property. Similarly a Grant limited to real or personal estate is ignored unless a grant limited to the remainder of the estate has already been made or is made at the same time.
Wills and probate: Compelling intestacy?
LNB News 19/05/2009 18
Published date: 18 May 2009
Author: Michael Tringham
Journal name: New Law Journal
Journal date: 15 May 2009
Journal citation: 159 NLJ 701
Jurisdiction: England; Wales; European Union; France
Abstract: New Law Journal, Issue 7369: Does the story of Dorset farmer David Cooper present the case for compulsory intestacy?
Summary: Unravels the world of contentious probate. David Cooper was in effect kidnapped in his own home when Sonia Crabb and Tony Junge moved into Hardings Farm near Gillingham with their five children. Elsewhere, the French National Assembly has voted to recognise the legal status of foreign civil partnerships between same-sex couples registered in other EU countries.