Geographical Blunder Triggers £1,000,000 Will Dispute

Drafting wills is a task for experts and even the slightest mistake can become a focus of dispute. That point was made loud and clear by a case in which the true wishes of an eminent scientist were put in doubt by a basic geographical error.

The nuclear physicist was worth about £2.1 million when he died, leaving the lion’s share of his assets ‘within the UK’ to the Royal Society, the world’s oldest scientific institution. However, he had about £1 million in bank accounts in the Channel Islands and the Isle of Man, which every geographer knows are not part of the UK.

The society argued before the High Court that its benefactor’s wishes were clear and that the will simply contained an elementary mistake. However, his surviving relatives insisted that he had fallen out with the society in his autumn years and had intended to leave the money he had offshore to them.

Ruling in favour of the society, the Court noted that lawyers may understand the technical meaning of the term ‘UK’ but that even highly intelligent laymen may not. The use of the term in the will was not confined to its legal definition but embraced the whole of the British Isles. The Court was entirely satisfied that the scientist did intend to include the offshore accounts in his will and that their contents should therefore pass to the society.

Typo Triggers Home-Made Will Dispute

If ever there was a cautionary tale to discourage people from making home-made wills, it must be that of a one-character typing error that triggered a costly High Court dispute about a gift a multi-millionaire’s Spanish villa.

The will took the unusual form of a typed letter to the businessman’s solicitors.  There was no evidence as to who had typed it.  It contained a purported bequest to his partner of his villa at ‘87 Loma Del Rey’.  He in fact had no property at that address, although he did own a villa at 81 Loma Del Rey.

The partner, who had formed a relationship with him following his divorce, argued that it was obvious that an error had been made and that he intended to leave the villa to her.  However, his three sons were adamant that the mistake meant that there had been no valid bequest of the villa, which should therefore pass to them as his next of kin.

The sons put forward a theory that the partner had typed the letter and that their father had deliberately given her the wrong address as a ruse so that she would not inherit the property.  However, she denied being the typist and the Court noted that there was no evidence to support the sons’ speculations.  In those circumstances, the Court declared that the businessman intended to leave the villa to his partner.

The new main residence nil rate band

As widely anticipated, the Chancellor announced in his summer budget measures that will eventually allow couples to pass on their family home to their children or grandchildren free of inheritance tax, as long as the home is not worth more than £1 million.

The relief is being phased in progressively and the £1 million limit will not be reached until 2020/21.

Additional nil rate band

For deaths that occur on or after 17 April 2017, the main residence nil rate band will be available when a residence is passed on to a direct descendant.  The main residence nil rate band is set at:

£100,000 for 2017/18;
£125,000 for 2018/19;
£150,000 for 2019/20; and
£175,000 for 2020/21.

The main residence nil rate band will be increased in line with the increase in the Consumer Prices Index from 2021/22 onward.

Each individual is entitled to their own main residence nil rate band, which is available in addition to the existing nil rate band (currently £325,000).  As is the case with the existing nil rate band, if a person dies without using their full main residence nil rate band, the unused proportion we will be available on the death of their spouse or civil partner.

The introduction of the main residence nil rate band will eventually allow a couple to pass on a family home worth up to £1 million free of inheritance tax.

Direct descendants only

The additional relief for passing on a residence will only apply where the property is passed on to direct descendants, such as children or grandchildren.  The measure does not benefit childless couples, as the additional nil rate band is not available where the property is left to someone other than a direct descendant.  This would be the case where, for example, a maiden aunt left her home to a niece.

Downsizing

Although the new nil rate band is only available for deaths that occur on or after 6 April 2017, the nil rate band will also be available where a person downsizes or on or after 8 July 2015, or ceases to own a home on or after that date and assets of an equivalent value, up to the additional nil rate band, are passed on to direct descendants after death.

High value estates

Those with high value estates (in excess of £2 million) will not be able to benefit from the full amount of the additional nil rate band.  The additional nil rate band is reduced by £1 for every £2 by which the estate exceeds £2 million.

Need to know: The additional nil rate band is only available where deaths occur on or after 6 April 2017 and where the property is left to a direct descendant.  The relief is reduced where the value of the estate exceeds £2 million.

The Risks of Making a DIY Will

Making a will is one of the most important things you can do to prevent strife between your loved ones after your death.

In a recent case, a widow drafted her own will using a shop-bought form, leaving her estate (valued at around £300,000) to her son and daughter equally and appointing them her joint executors.  The widow disliked the legal profession and insisted before her death that lawyers should play no part in the administration of her estate.  However, in the absence of independent advice, the administration had not progressed at all due to the siblings’ inability to see eye to eye and work together.  Almost four years after she died, the siblings fought it out at the High Court and ran up legal costs bills estimated at £40,000.

Criticising their constant bickering, the Court found that there had been a complete breakdown of trust and communication between them.  In the circumstances, the Court took the unusual step of removing both of them as executors of the will.  If the siblings could not agree on their replacements, the Court would appoint independent executors to push forward the administration of their mother’s estate.

Judge slams HMRC’s treatment as ‘Grossly Unfair’

One of the fundamental functions of our legal system is to protect ‘the small man’ against the leviathan of the state.  In one striking case, HMRC was heavily criticised for its grossly unfair treatment of a dyslexic painter and decorator with the mental age of a 12-year-old.

HMRC had estimated the man’s earnings over a six-year period and hit him with tax demands of almost £18,000.  He denied that his earnings had ever reached the tax threshold.

The man had suffered from serious learning disabilities and his life had been struck by various misfortunes, including the end of his marriage, the subsequent death of his wife and a fire at his home.  He had managed to keep on top of his paperwork until his wife left him as the sole carer for their primary-school-age daughter.  The child had written a letter to his local tax office on his behalf but it had been returned unopened.  He had visited the office in person three times, but had been given only limited assistance.

In allowing his appeal, and cancelling the tax demands, the First-tier Tribunal found that he was a credible witness who was entirely lacking in guile.  His treatment by HMRC had been unconscionable, in the sense of grossly unfair, outrageous and completely unreasonable.  His literacy problems should have been obvious to HMRC staff and no consideration had been given, or concessions made, to his particular vulnerability.

Budget 2015: Main IHT Changes

Additional nil rate band

Much has been made of the increase of the inheritance tax allowance to £1m introduced in this year's Budget.  However, on closer inspection, the tax break is not as generous as it first appears.

The increase is due to an "additional" nil rate band over the existing nil rate bank of £325,000 (which has been frozen until April 2021), which can be used if a residence is passed on death to direct descendants.  The additional nil-rate band will not come in until 2017-18, when it will be £100,000.  It will then increase to £125,000 in 2018-19, £150,000 in 2019-20, and £175,000 in 2020-21.  It is reduced for estates with a net value of more than £2m (at the rate of £1 for every £2 over that threshold).

Interestingly, the additional nil rate band will also be available to anyone who downsizes after July 8 2015 and the assets of equivalent value are passed on death to direct descendants.


As with the existing nil rate band, any unused additional nil rate band can be transferred to a surviving spouse or civil partner, which is how the total nil rate band of £1m has been calculated.


Inheritance tax and Non-Domiciles


From April 2017, inheritance tax will be payable on all UK residential property owned by non-domiciled persons (directly or through an offshore structure).

Further, the point at which a non-domiciled person is deemed domiciled for inheritance tax purposes will be brought forward to 15 out of 20 years.  From April 2017, people who were born in the UK to parents who are domiciled here will be treated as UK domiciled while they are in the UK.

Animal Charities Give Way to Human Needs in Will Dispute

Everyone has the right to choose who to benefit in their wills.  However, that right is not unrestricted.  In a case that has lasted almost a decade, a mother who cut her poverty stricken daughter out of her £486,000 estate has had her will effectively re-written by the Court of Appeal.

The mother fell out with her daughter many years before her death when the latter eloped with her teenage boyfriend.  Alongside her will, the mother left specific instructions that any attempt by her daughter to make a claim on her estate should be actively resisted.

The daughter, a mother of five who lived in straitened circumstances, nevertheless launched a claim under the Inheritance (Provision for Family and Dependents) Act 1975.  The claim was defended by her mother’s executors and the three animal charities named in the will.  Initially, the Court found that her mother had failed in her duty to make reasonable provision for her in her will and awarded her £50,000 from the estate.

The daughter appealed the decision.  In upholding the daughter’s appeal, the Court of Appeal found that the judge had under-estimated her reasonable needs.  Her portion of the estate was increased to £164,000 to cover the cost of purchasing her housing association home and to modestly supplement her income from benefits.

Tax Avoidance and Retrospective Legislation – Court Guidance

Tax avoidance schemes can be tempting, but in one case property buyers whose hopes of escaping Stamp Duty Land Tax (SDLT) were wrecked by retrospective legislation failed to convince the Court of Appeal that their human rights were violated.

The perceived loophole in the SDLT regime on which the relevant scheme relied was closed by the Finance Act 2013. A number of taxpayers affected by the change in the law launched judicial review proceedings, arguing that their rights to a fair hearing and to peaceful enjoyment of their private property had been breached.

It was also submitted that the maximum loss to HM Revenue and Customs as a result of the scheme was only about £7 million. On that basis, there was no significant risk to the public finances and there were no wholly exceptional circumstances which could justify the extreme step of legislating retrospectively.

The taxpayers’ arguments were, however, rejected by a judge. In dismissing their challenge to that decision, the Court found that their human rights were not engaged. The assertion of a right to tax relief did not amount to a ‘possession’ which should be afforded protection and the right to a fair hearing did not apply to tax disputes in that they did not involve determination of civil rights and obligations. The legislative changes were also neither unforeseeable nor arbitrary.

High Court Bends Over Backwards to Resolve Family Will Dispute

Newspaper columns are replete with accounts of the crushing costs of litigation and it is easy to lose sight of the fact that it is the role of judges to resolve disputes as efficiently and cheaply as possible. The High Court has done just that in bending over backwards to achieve a settlement of a bitter family will dispute.

Two sons had launched proceedings, challenging their father’s will by which he left everything he owned, including his £675,000 share of the family farm, to a childhood friend. The dispute had generated a great deal of acrimony and the positions of the parties were in danger of becoming entrenched.

An attempt at mediation had largely stalled and it was to the credit of lawyers on both sides that they had encouraged the parties to settle their differences. To that end, the Court took the rare step of directing that a judge should carry out a ‘neutral evaluation’ of the strength of the arguments on each side.

That swift and relatively low cost procedure, whilst not leading to a formal judgment, would result in non-binding recommendations as to the likely outcome of the case which would be likely to assist in achieving a settlement. The Court noted that the use of such a fast-track procedure was possible under the Court’s inherent jurisdiction to control proceedings and was to be ‘warmly welcomed’.

Art Collector’s Son Scores Inheritance Tax Victory

Gifts to your loved ones are a sensible means of minimising Inheritance Tax (IHT) liabilities on your death – but it is vital to seek legal advice and leave a clear paper trail behind you if substantial tax savings are to be achieved.

HM Revenue and Customs had raised IHT demands against the son and heir of an art collector in respect of three valuable paintings. As executor of his mother’s estate, he disputed liability on the basis that she had given the paintings to himself and his brother more than 20 years before her death.

In allowing his appeal and accepting that the paintings were free from IHT, the First-tier Tribunal found that his account of the gifts was entirely credible. With some ceremony, the paintings had been taken off the wall of the family home and handed individually to him, before being re-hung where he wanted them. Although the paintings had stayed in the family home, that was only because he and his brother had had nowhere secure enough to keep them.
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