Householder Triumphs in ‘Main Residence’ Appeal

When assessing whether a property is a person’s ‘main residence’ for Capital Gains Tax (CGT) purposes, it is the quality, not the quantity, of occupation that matters. A tribunal made that point in upholding a householder’s appeal against back-tax and penalty demands totalling more than £46,000.

The man had bought a house for £420,000 through his company. He lived in it for about two and a half months before the financial crash intervened and he had to move out and rent the property to a friend. After his tenant died about two years later, he moved back into the property for a further six months.

However, he felt unable to remain there due to his mental health difficulties and the house was eventually sold for £550,000, realising a profit of £121,000. He did not declare that gain on his tax return and, following an investigation, HM Revenue and Customs served him with a demand for £27,312 in CGT. He also received a late payment penalty of £19,118.

In allowing his appeal against those bills, the First-tier Tribunal acknowledged that he had been in occupation of the house for less than half the period during which he owned it. However, it was satisfied that it had been his intention from the outset that the property would be a home for himself and his family. That hope had in the event been thwarted by factors outside his control. In the circumstances, the house had been his main residence and no CGT was payable.

High Court Rules that Couple’s Mirror Wills are ‘Set in Stone’,

It is common for couples to make so-called ‘mirror’ wills, leaving everything to each other and, eventually, to their children. Such documents may appear simple but, as one High Court case showed, they can be effectively unchangeable, depending on what promises are made at the time.

A husband and wife signed mirror wills in 2000 which provided that each would inherit the other’s estate and that, when both of them died, everything would go to their daughters. Following the husband’s death, the wife made more than a dozen further wills, each replacing the other, before her own death 16 years later. The last of those wills bequeathed £40,000 in legacies to the daughters, but the remainder of the wife’s £213,000 net estate to other beneficiaries.

There was no dispute that the wife had the mental capacity required to make a valid will. However, her daughters argued that, by changing her will, she had broken a binding commitment that she had made to her husband before his death. They had been present when the mirror wills were signed and had been assured by both their parents that their terms were ‘set in stone’ and would not be changed.

In upholding the daughters’ arguments, the High Court accepted their evidence as to the mutual promise that their parents had made. There was no doubt that both of them intended at the time that their wills would not be changed. On her husband’s death, therefore, the wife lost the unilateral right to dispose of her estate as she pleased. In the circumstances, the Court ruled that her personal representatives held her estate on trust to give effect to the mirror wills.

You Can Benefit Whomever You Wish In Your Will – Whatever Your Motives

When making a will, you have the legal right to choose who should benefit and who should not – even if your motives are open to criticism. The High Court made that point in upholding the will of a woman who disinherited three of her children after they reported their abusive father to the police.

After the siblings accused their father in the 1990s, he admitted having indecently assaulted two of them and was given a suspended prison sentence. Their mother knew that there was some truth in the allegations against her husband but felt that they had been exaggerated. She was also angry that the siblings had made the allegations public when she believed that the matter had been settled.

Her reaction was to cut them out of her will, instead leaving her entire estate, worth about £157,000, to her other children. The terms of her will remained unchanged when she died in 2013, nine years after her husband.

In rejecting the siblings’ challenge to the will, the Court found that their mother was the dominant partner in the marriage and rejected arguments that her husband had subjected her to undue influence. She was not suffering from an insane delusion or the mistaken belief that her husband was entirely innocent.

Her view was that the siblings were the cause of her husband having to face serious and potentially life-changing criminal proceedings, albeit justified at least in part. She had the mental capacity to make a valid will and – although not every parent would have done the same and some people might criticise her motives – there was nothing irrational about her decision to disinherit the siblings.

Sick Pensioner Lacked Mental Capacity to Make a Valid Will

Those who delay making a professionally drafted will until they reach advanced old age are making a mistake for which their loved ones are likely to pay in the long run. In one case, a woman’s three children were left at loggerheads after she signed a new will bequeathing all that she had to just one of them.

Under an earlier will, the woman had divided her estate equally between her children. However, just over a year before she died, she made a new one, cutting two of them out. By then she was in poor health and aged 82. She had not engaged a solicitor to draft the will or advise her in respect of its contents.

After the disinherited children launched proceedings, their brother pointed out that he had lived with their mother and cared for her until her death. It was submitted that she had understandably wanted to reward him for his devotion and that there was nothing irrational about the will.

In overturning the will, however, a judge found that the woman had lacked the required mental capacity to execute it. Ten years before she signed it, she had suffered a stroke and been diagnosed with cerebro-vascular disease. She had later been recorded as suffering from Parkinson’s disease and a query had been raised as to whether she also had dementia.

The cumulative effect of medical evidence, the testimony of members of her family, the appearance of the will and the fact that no lawyer was involved in its preparation all weighed in favour of the disinherited children. The judge’s ruling meant that the earlier will automatically came into effect, entitling each child to an equal share of their mother’s estate.

Making a Will? Don’t Forget Your Moral Responsibilities to Your Family!

When making your will, the law expects that you will not forget your responsibilities to those who have a legitimate call on your bounty. The point was made by one case in which a father left his entire £265,000 estate to a friend, cutting out his three children.

The man had severed links with his family following the end of his second marriage and had for many years had little or no contact with his children. His daughter’s efforts in adulthood to rekindle her relationship with him had borne fruit for about three years before they fell out and all communication between them lapsed.

After his death, she launched proceedings under the Inheritance (Provision for Family and Dependants) Act 1975 on the basis that he had been obliged to make reasonable provision for her in his will. Working for a retailer under a zero hours contract, she was in straitened financial circumstances and her lack of funds was standing in the way of her ambition to qualify as a veterinary nurse.

Her application was, however, resisted by the sole beneficiary of the will, a close friend of her father who had visited him regularly during his final months when he was dying from cancer. He claimed that the man had had no relationship with his daughter and pointed to a side letter attached to the will in which the man claimed not to have seen or heard from his children in 18 years. The friend claimed to have spent his entire inheritance on settling his debts and other expenses and that he faced his own financial difficulties.

In upholding the daughter’s claim, however, a judge found that it was a not a case of a prodigal child who only reappeared when there was the possibility of some money to be had. It was clear that she very much regretted the absence of a relationship with her father and that she had a moral claim on his bounty. She was awarded £30,000 from his estate. The friend had earlier agreed to pay £22,000 from his inheritance to one of the man’s sons who was unable to work due to health problems. His other son had made no claim on the estate.

Drafting Wills is a Job for Professionals

Drafting wills may appear easy and many people are tempted to save a few pounds by dispensing with legal advice. However, as one High Court case clearly showed, the words used can have particular legal effects that could not be foreseen by a layman and a thorough knowledge of the law is therefore essential.

The case concerned a will by which, after specific legacies, a woman bequeathed the residue of her £437,508 estate equally to those of her three sons who were living at the date of her death.

Two of her sons died before her, one of them having had a daughter. Thus, an issue thus arose as to whether that granddaughter was entitled to inherit her late father’s share of the estate.  The surviving son argued that he was entitled to the entire estate on the basis that the gift to his brother lapsed on his death.

In ruling on the dispute, the Court noted that a straightforward interpretation of the will supported the surviving son’s arguments. However, that ignored Section 33 of the Wills Act 1837. That provision requires that, where bequests are made to children or other descendants who die before they can inherit, their entitlements will normally pass to any of their own children who survive the donor.

There was no sufficient evidence, either in the wording of the will or in her conduct, that indicated that the woman had intended Section 33 not to apply to her will.  In the circumstances, the daughter was entitled to inherit a legacy of almost £50,000 left to her deceased father and his half share of the residuary estate.

Own a Company? Have You Planned for Its Future Without You?

According to recent research by Legal & General, over half of business owners have left no instructions in a Will or any special arrangements regarding shares; 26% were unaware that a directors loan account had to be repaid on death:

Estate planning really is essential, especially if you own a company.  Failing to take professional advice can store up unforeseen troubles for both your business and your loved ones.  The point could hardly have been more powerfully made than by one High Court case concerning a company that was plunged into crisis following its founder’s death.

The businessman owned all the shares in the company and was its sole director.  His death had left the company directionless, and without directors or a company secretary to guide it.  Its bank account had been frozen, leaving it unable to pay its staff or tax liabilities.  The executors of his estate launched emergency proceedings in order to save the business.

In upholding the executors’ application under Section 125 of the Companies Act 2006, the Court directed that the register of companies should be amended to put the deceased's shares in the executors' names.  This enabled the executors to pass a written resolution appointing a director of the company who would have the powere to put it back on an even keel.

Such relief is normally only granted after a will has been admitted to probate, but the Court recognised that the case was wholly exceptional.  Given the company’s pending liabilities in respect of staff wages and a VAT demand, any delay could irreparably damage the business.

Government U-turn on Proposed Probate Fee Increases

We're delighted to say that the Government has announced that is was scrapping the proposed increases in probate fees in May (see previous post here:

The snap general election means that the Government acknowledges that it is unlikely that the large increases in probate fees due to come in in May will now take place, as there is insufficient Parliamentary time for the legislation to pass.

It is not clear whether the fees (which have attracted withering criticism as a 'stealth tax' on larger estates) will be brought back in a future session of Parliament should the Conservatives be re-elected.  However, one of the downsides if the planned changes are shelved is that the new system would have exempted small estates (those below £50,000) from the charge altogether. Under the present system, no fee is payable if the estate is under £5,000.

Human Rights Win for Adopted Children

Parliament alone can enact statutes – but judges have the power to interpret them in a manner that achieves conformity with the UK’s human rights obligations. Exactly that happened in one ground-breaking probate case, in which the High Court swept away one of the last vestiges of historic prejudice against adopted children.

By his will, a man who died in 1947 left the residue of his estate to his two sons and daughter in equal shares for life. What remained of the estate on their deaths was to pass in turn, again in equal shares, to any of their children who attained the age of 21. One of the sons did not have natural children but had adopted two before his death in 2008. An issue thus arose as to whether the adopted children counted as ‘children’ for the purposes of the will.

It was agreed that, if the case were to be decided purely on the basis of domestic law, the adopted children’s claim would inevitably fail. Although the Adoption Act 1976 (the Act) provided that an adopted child should be treated in law as the child of the adopter, it did not have retrospective effect and did not apply to the will.

In coming to the adopted children’s aid, however, the Court found that the existing legislation had a discriminatory effect on the adopted children and infringed their right to respect for their family lives. Their father had died after the Human Rights Act 1998 came into force and the European Court of Human Rights had consistently ruled against laws that confer more limited inheritance rights on adopted, rather than natural, children.

The Court found that it was possible to read down the relevant parts of the Act so that they conformed with the adopted children’s human rights and enabled them to inherit under the will. Such a reading did not go against the grain of the Act and would not have practical repercussions with which judges would be unable to deal in the future.

High Court Breaks Deadlock in Novel Will Dispute

Twenty-four years after farmland was compulsorily acquired to make way for a new motorway, a judge has ruled on the correct destination of compensation payable by the Department for Transport. The case raised novel issues of particular interest to wills and probate professionals.

The land was acquired in 1993 to enable the construction of the road, which opened to traffic in 1997. Its owner had received interim compensation payments but more than £90,000 remained outstanding at her death. She had executed a number of wills over the years, all of which left the land to her godson. Her final will bequeathed the residue of her estate to three cousins.

In those circumstances, the executors of the will sought judicial guidance as to whether the money should pass to the godson, as inheritor of the land, or to the cousins, as residuary beneficiaries. In ruling in favour of the latter course, the judge rejected arguments that the owner could be taken as having intended a gift of the money to her godson. On a true interpretation of the will, no such intention could be discerned and the money thus fell into the residue of the estate.