2010 & All That Jazz
Happy 2011 to you all! After the festive fizz now the new year slumber but hopefully not slump. 2010 was something of a transitional year with a change in government and the beginning of a slight improvement in the economy but 2011 is the beginning of the Coalition’s economic deep freeze which will start in earnest to-day with the increase in VAT to 20%.
As the historians say you cannot understand the present without understanding the past I thought it was timely to review some of the ‘highlights’ of 2010.
2010 – A Reflection
At first glance it was not a memorable year for the Wills, Probate, Trust and Tax practitioner but then any year which has three Finance Acts must be worth a comment or two. We also saw a number of interesting cases which were appealed and await with interest the decision in the Hastings-Bass appeals.
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Wills & Probate
The EU Wills & Succession Regulation continued to be discussed in the early part of the year but the UK government exercised its opt-out on 15 December 2009 by Ministerial statement.
Comments were submitted on behalf of STEP and the Law Society on the Law Commission’s consultation on the Intestacy Rules. A public survey was commissioned and the follow-up recommendations are awaited so it will probably be 2012 before any proposed legislation will be available for comment.
The Non-Contentious Probate Rules are undergoing a review and whilst the substance of the rules looks unlikely to change the way in which we deal with the Probate Registries will inevitably alter.
The prospect of the abolition of the presumption of advancement by virtue of s.199 Equality Act 2010 was widely discussed but as yet it is not in force. When it is in force it will mean that acquisitions by a husband for a wife will need to be clearly shown to be a gift as otherwise no presumption of advancement.
Regulation of Will Writers took on an increased urgency during the year with the BBC’s Panorama programme probably doing more to push the Legal Services Board towards regulation of Will writing than anything else, although the decision by the Scottish Parliament to regulate north of the border will be influential. The Consumer Panel has been asked to consider the impact on the consumer and has called for evidence which the Law Society has submitted along with others.
Of all the various cases the ones which stood out for me were:
Mulholland v Kane  NI Ch 9 in its use of the developing area of proprietary estoppel by a cohabitant to gain a share of the deceased’s estate rather than the IPFD 1975.
RSPCA v Sharp  EWHC 268 & EWCA Civ 1474 on the construction of a Will where the intention of the testator was unknown. The usual formula for the use of the NRB was originally interpreted to be in addition to a later legacy given free of tax to chargeable beneficiaries which had the effect of reducing the residue for the charity. On appeal this approach was criticised and the sequential interpretation was overruled so that the chargeable legacy was deducted from the NRB so reducing the impact of legacies and increasing the residue for the charity. This case has provoked and continues to provoke must commentary from the profession as to whether the RSPCA should have brought this case and on the outcome. I believe that the correct legal interpretation has been achieved but it was probably not what the testator intended.
Key v Key  EWHC 408 which roundly criticised a solicitor for failing to abide by the ‘golden rule’ in circumstances where the intending testator was devastated by bereavement to such an extent that he lacked competence which the Judge said was about having decision-making powers rather than just the ability to comprehend.
The appeals in the significant cases of Perrins v Holland  EWCA Civ 840 and Gill v Woodall  EWCA Civ 1430 are both important reads. Neither overturned the decisions at first instance (in Perrins the testator was competent despite severe MS & the rule in Parker v Felgate could be applied; in Gill the deceased lacked competence so the Will failed) but each clarified the decision making process. In the case of Gill the Court of Appeal concluded that the surviving spouse made her Will without knowledge and approval rather than under undue influence. Either way, this case impacts on the way we take Will instructions from married couples – should we really treat them as separate clients and see them independently.
From a practical point of view the case of Northall v Northall  EWHC 1448 was important in that it clarified that simply owning a joint bank account did not mean that the surviving co-owner was freely entitled to the proceeds on the death of the other co-owner. It depends on the nature of the agreement about the use of the account and a constructive trust would apply. This finishes off the jig-saw of cases on the tax treatment of joint accounts which established that a sole account which was transferred to a joint account would not necessarily mean an outright gift to the survivor of the gifted share but usually a reservation of benefit by the donor if the sole owner retained a joint interest which was unrestricted and could therefore withdraw all the funds without reference to the co-owner.
Trusts & Tax
The highlight of the year has been the coming into force of the Perpetuities & Accumulations Act 2009 on 6 April 2010. The disappointment of the year has to be the delay in finalising the STEP Standard Provisions 2nd Edition.
Trusts continued to be under attack from HMRC with a consultation in the use of trusts in tax avoidance coupled with the changes to the rate of income tax on trusts without an interest in possession to 50% for non-dividend income and 42.5% for dividend income from 6 April 2010.
The first Budget of the year was on 24 March 2010 and closed off the Labour Government’s time in office. The second Finance Bill followed the Coalition Governments debut and was blissfully short by modern standards at 11 clauses and 5 schedules but the third and final Finance (No.3) Act 2010 appeared in October to implement the outcome of various consultations mentioned in the Emergency Budget back in June. With any luck we will avoid three Finance Acts in one year for some time to come!
One of the consultations was whether IHT should be brought within DOTAS – by written Ministerial statement dated 6 December 2010 IHT and Trusts will come within the scheme.
HMRC have recognised the need to support the tax agent in the important job of collecting the correct taxes so it is to be welcomed that various initiatives to work with Agents have been developed including the creation of Toolkits – the one for the Trust & Estate Tax Return was available for the 2009/10 return and more recently the one for the completion of the IHT 400 went live on HMRC’s website.
The Excepted Estates rules are changing to accommodate the transferable nil rate band in straightforward cases.
There are always lots of cases but again a few struck a chord with me:
Fryer v HMRC  UKFTT 87 which emphasised the need to be careful when omitting to take pension rights at a time of terminal illness and the conditions required to be met to avoid an IHT charge.
Kernott v Jones  EWCA Civ 578 a case to shock cohabitants who separate and do not consider the division of assets for some time afterwards. Despite continuing to pay the mortgage in full for many years the woman resident only retained a 50% share as original co-owner of the property. A shock outcome with wide variation in decision making across the County Court, High Court and Court of Appeal.
The Courts have continued to grapple with the application of the rule in Hastings-Bass. The law relating to mistake and the rule in Hastings-Bass, where trustees exercise their powers in a misapprehension as to the effect of the exercise of those powers, have developed along different lines. Re Futter  EWHC 449 was another case in which the Court was asked to apply the rule to protect the beneficiaries where the trustees had exercised their powers incorrectly because the resulting tax consequences were not as they had anticipated.
The unusual feature of this case was that the trustees had taken specific legal advice on the tax consequences but this proved to be incorrect. Despite that, the court found that the advancements made were void because the trustees had not exercised their power appropriately.
This case and the earlier decision of Pitt v Holt  EWHC 45 went to appeal in November and we await the Court of Appeal’s decision with interest.
Valuation issues around land continue to be problematic but the useful cases of Chadwick v HMRC  UKUT 82 (LC) and Hatton v HMRC  UKUT 195 indicated how this might be correctly approached and Re Rosalind Price deceased v HMRC  UKFTT 474 explores again the awkward aspects of valuing related property and the application of s.161 IHTA 1984.
The appeal in HMRC v Brander  UK UT 200 received much commentary on the way in which the tribunal viewed the application of APR to a mixed activity landed estate in Scotland, granting APR even though a significant amount of income came from the letting of property.
All in all a memorable year which saw the passing of Peter Twiddy – a name which will be familiar to many as the person who reigned over the Capital Taxes Office for many years until his retirement in 2005. We shall perhaps look back fondly on his time at the helm, particularly if the stories are true, namely that he prevented the changes to the taxation of trusts from coming on the statute book in 1997 when Gordon Brown became Chancellor – he was made to wait until the first Budget after Mr Twiddy’s retirement before he eventually succeeded in substantially changing the IHT treatment of trusts.
© Gill Steel LawSkills Ltd
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