Judge Rules that Tax Avoider “Can’t Have Cake and Eat it”

An English woman (the Appellant) who bought three foreign properties in her former partner's name to avoid paying Capital Gains Tax (CGT) has been told she cannot "have her cake and eat it".

The Appellant was in a relationship with a Brazilian woman (the Respondent) for 11 years and they viewed their partnership as ‘akin to a marriage’.

However, after they separated in 2007, the parties engaged in a dispute over the distribution of their assets, which included two properties in the UK and a flat and two plots of land in Brazil.

A High Court judge ruled that the majority of the disputed assets should go to the Appellant, while the respondent should keep the Brazilian properties, which had been purchased in her name.

The appellant challenged that ruling at the Court of Appeal, arguing that she alone had paid for the Brazilian properties and had only transferred them into the respondent’s name in order to avoid potential CGT liabilities.  She argued that she had not fully understood Brazilian law and believed that it would be possible for her former partner to be named as sole legal owner of the properties whilst she, the Appellant, would retain the equitable interest in them.

However, her appeal was dismissed by three senior judges, who ruled that the Appellant could not put the properties in her partner’s sole name for tax reasons and then later claim beneficial ownership of them.

Lord Justice Rimer said that the consequences of putting the Brazilian properties in the Respondent’s sole name must have been clear to the Appellant, a professional woman, at the time.

The judge, sitting with Lord Justice Thorpe and Lord Justice Patten, concluded: ‘The judge found that the tax considerations did lie behind the proposed transfer.

‘The only way in which the tax-saving measure could have worked, and the only way in which the Appellant would have understood that they would have worked, was on the basis that the Respondent was named as the owner of the properties in Brazil - not just as the legal owner of them but as the beneficial owner of them.

'She plainly intended to achieve that; otherwise it would have been the case that the tax-sheltering she intended to achieve would not have worked.’

How to Achieve Greater Privacy in Your Will

The genealogy website Ancestry.co.uk has recently uploaded more than six million probate records covering the period from 1942 to 1966.  These include the details of many famous wills and reveal such fascinating snippets as the fact that the Welsh poet Dylan Thomas left only £100 on his death (the equvalent of £2,300 today) whilst the children’s author Beatrix Potter was much more financially successful, leaving her husband an estate that would be worth nearly £8 million today.

Interesting though this information is, both to the genealogist and to the general public, some people may wish to keep their assets and who inherits them away from the public domain.  As every will becomes publicly available once admitted to probate, and each Grant of Probate or Administration will give at least an indication of the value of the estate, how can greater privacy be achieved?

If your concern is keeping the identity of your beneficiaries under wraps, this could be achieved by leaving a sum of money to a nominated person to distribute as you direct in a document separate from the will which would not be admitted to probate.  This is known as a secret (or in some cases half-secret) trust.

Alternatively, you could consider setting up a ‘pilot’ trust in your lifetime over, say £10, and then leaving assets to the trustees in your will to hold upon the terms of the trust.  Again, the trust document would not be admitted to probate and the identity of the beneficiaries of the trust would remain known only to those you choose.

Letters of wishes can also be used to distribute furniture, art, jewellery and other personal effects which keeps this information out of the public eye, both as to the exact items owned and the identity of the recipients.

If your wish is to avoid the exact amount of your assets becoming common knowledge on your death, giving away assets during your lifetime, either outright or to trusts, can be a way of achieving this, subject to tax and affordability constraints.

Assets such as insurance policies can be put outside the estate by writing them in trust.

Finally, if all your assets are held in joint names, they will in most cases pass on death to the surviving joint owner - although this does depend on whether the assets are held as "joint tenants" or "tenants in common" and you should seek legal advice if you are in any doubt.  If all your assets are held as joint tenants then you probably won't need a grant of probate, thus maintaining complete confidentiality.

Privacy from the tax man is a different matter and all assets, including trusts in which you have an interest and gifts made in the last seven years before death, still have to be declared to HMRC by your executors even if it's not necessary to declare them for probate purposes.