Evidence of severance of a joint tenancy
Evidence of severance of a joint tenancy – Chadda, Nash and Moroney v HMRC Commissioners  UK FTT 1061
This is an appeal to the HMRC Commissioners regarding a Nil Rate Band Trust set up for Inheritance Tax (IHT) Planning purposes. The tax planning involved the severance of the Joint Tenancy on the family home. The original Notice of Severance was missing although an unsigned draft was available. The question was whether there was sufficient evidence to show that the original notice had been validly given or alternatively that the joint tenancy had been severed by one of the other methods permitted by law.
The evidence consisted of a bundle of documents which included witness statements of Graham Young, Parveen Chadda, Eileen Nash and a Statement of Agreed Facts. Mr Chadda also gave oral evidence.
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Mr Chadda, a partner in a firm of accountants by the name of Kingston Smith, had acted for James Tobin and his company, James Tobin and Sons Limited, since 1983 in providing the Tobin family with accountancy, business, commercial and personal tax advice.
Mr and Mrs Tobin had been married for many years until the death of Mr Tobin on 29 September 2003. They had a number of children but those involved in this appeal were Mary Bridget Tobin, Eileen Nash and Pauline Moroney. Mary was disabled and required round the clock care.
In early 2003, it became apparent that Mr Tobin had cancer and Mrs Tobin had a terminal heart condition so they decided to make new wills with a view to ensuring that as much money as possible would be available to provide support and care for Mrs Tobin and her daughter, Mary.
Mr Chadda’s firm provided IHT advice and one of his colleagues, Marcus Everett, a lawyer, advised on the advantages of using both IHT Nil Rate Tax Bands. He explained that they would need to make new Wills and may have to sever the joint tenancy on Park House Farm, depending on whether or not this had already been done. He requested the title deeds from the bank to ascertain what the situation was in this respect.
The Wills were drawn up in almost identical terms save that Mr Tobin’s Will made a specific gifts of shares in his company.
Mr Chadda maintained that he took the Wills to Park House Farm on 30 July 2003 where he went through them with Mr and Mrs Tobin, explaining to them how the tax saving was to be achieved. To the best of his knowledge, the two daughters, Pauline and Eileen, were in the house but not present when the Wills were signed. Eileen was able to give evidence confirming Mr Chadda’s visit to the house as his attendance notes were sketchy or non-existant.
Subsequently, Mr Everett prepared a Notice of Severance of the joint tenancy in Park House Farm. Mr Chadda contended that he visited Park House Farm in early August 2003 and it was then that Mr and Mrs Tobin signed the Notice of Severance, a contention that HMRC disputed.
Mr Tobin died on 29 September 2003 and Mr Chadda was appointed executor with power reserved to Mrs Tobin.
Mr Chadda then agreed with Mrs Tobin to transfer the Nil Rate Band Trust’s share in Park House Farm to her on the understanding that this sum (£255,000.00) was owed by Mrs Tobin’s estate to the Nil Rate Band Trust on her death. This was purely an oral contract – there was no written I.O.U.
The IHT Account relating to Mr Tobin’s Estate did not indicate that the family house was to pass by survivorship.
However, when Mrs Tobin died a claim was made by Kingston Smith who were dealing with the Probate to transfer Mr Tobin’s nil rate band to Mrs Tobin’s estate. HMRC pointed out that the transfer of the nil rate band was only available where the surviving spouse had died after 9 October 2007 whereas Mrs Tobin had died on 27 July 2007. Kingston Smith then wrote to HMRC asking to substitute a debt of £255,000.00 plus interest against Mrs Tobin’s estate. It was later conceded that Kingston Smith’s inclusion of interest was erroneous.
On 28 May 2009 HMRC wrote to Kingston Smith referring to the IHT 200 that had been submitted following Mr Tobin’s death and asking for confirmation that Park House Farm had passed by survivorship to Mrs Tobin as the surviving spouse because there was no information to this effect in that form.
Richard Smith of Kingston Smith replied on 3 June 2009 that regretfully other than Form IHT 200, Kingston Smith no longer held copies of any other correspondence but from evidence available it would appear that Park House Farm had passed by survivorship to the surviving spouse.
On 6 August 2009, Richard Smith of Kingston Smith corrected himself by writing to HMRC as follows:
“There is no indication on the IHT account (Mr Tobin’s) that the family house was to pass by survivorship, on the contrary, the D4 clearly shows the net value of property (half share) £374,986 ‘net total of assets passing by survivorship nil’, the value of the half share being covered by the nil rate band and spouse exemption.
On this basis alone the full nil rate tax band of £255,000.00 was available to be covered by the ‘binding promise’ and is now available to Mrs Tobin’s estate.”
On 8 October 2009, HMRC wrote requesting documents evidencing severance of the joint tenancy. On 24 December 2009, Kingston Smith wrote to HMRC stating the Notice of Severance had been signed but that its whereabouts was unknown. Further correspondence ensued which culminated in HMRC stating that they did not consider that the burden of proof as to the severance of the joint tenancy had been satisfied.
On 8 August 2012, HMRC issued Notices of Determination on each of the Appellants stating that they did not consider that the Joint Tenancy on Park House Farm had been severed and therefore the full value should be taken into account is assessing the amount of tax due on Mrs Tobin’s estate.
Section 36 of the Law of Property Act 1925 (as amended by the Trusts of Land and Appointment of Trustees Act 1996) says:
“36 Joint Tenancies
- Where a legal estate (not being settled land ) is beneficially limited to or held in trust for any persons as joint tenants, the same shall be held in trust, in like manner as if the persons beneficially entitled were tenants in common, but not so as to sever their joint tenancy in equity.
- No severance of a joint tenancy of a legal estate, so as to create a tenancy in common in land, shall be permissible, whether by operation of law or otherwise, but this subsection does not affect the right of a joint tenant to release his interest to the other joint tenants, or the right to sever a joint tenancy in an equitable interest whether or not the legal estate is vested in joint tenants
Provided that, where a legal estate (not being settled land) is vested in joint tenants beneficially, and any tenant desires to sever the joint tenancy in equity, he shall give to the other joint tenants a notice in writing of such desire or do such other acts or things as would , in the case of personal estate, have been effectual to sever the tenancy in equity, and thereupon the land shall be held in trust on terms which would have been requisite for giving effect to the beneficial interests if there had been an actual severance.
Nothing in this Act affects the right of a survivor of joint tenants, who is solely and beneficially entitled interested, to deal with his legal estate as if it were not held in trust….”
Counsel for the accounts argued that they had to show, on the balance of probabilities, that the joint tenancy had been severed in one of three ways:
- Notice to each other
- By mutual agreement of the joint tenants
- By a mutual course of conduct indicating that the joint tenancy was mutually severed
She submitted that although the evidence was not perfect, on the balance of probabilities, Mr and Mrs Tobin had severed the joint tenancy.
HMRC made submissions as to the adequacy of the secondary evidence in view of the fact that the appellants had not been able to produce the Notice of Severance or a signed copy and contended that given the various inconsistencies in the Appellants’ evidence, it had not been proved on the balance of probabilities that the Notice had been given.
After considering the evidence, the Judge concluded that
- It was correct for HMRC to accept that the draft Notice of Severance was admissible
- Although HMRC were not satisfied that there was sufficient evidence to support the Appellants’ primary submission that written Notice of Severance was given by one of the Tobin’s to the other, however probable that might seem, he agreed with the submissions by Counsel for the Appellants that even if individual elements of the evidence were insufficient to support the conclusion being sought by a party to an appeal, consideration of all the evidence as a composite whole can lead to a finding that the overall evidence does support that conclusion.
Therefore, the Judge, in considering the totality of the evidence, concluded that the appeal should be allowed on the basis that:
- There was sufficient evidence to support the submission that written Notice of Severance was given by one of the Tobin’s to the other
- At the time of her death, Mrs Tobin was not beneficially entitled to the whole of Park House Farm
- Her interest in the property was subject to an obligation to pay the sum of £255,000.00 to the Nil Rate Band Trustees of Mr Tobin’s estate
The Judge further confirmed that there was sufficient evidence to support a severance of the joint tenancy on Park House Farm by mutual agreement, stating that he considered that a mutual agreement to sever need not be in writing.
This case emphasizes the obvious, namely:
- Practitioners should ensure that there are proper systems in place for filing original documents safely when closing a file or finishing a matter
- That relevant documentation should be in writing and signed by the relevant parties e.g. the oral IOU given by Mrs Tobin to the Nil Rate Band Trustees of Mr Tobin’s estate would have been better in writing. If there had been a signed IOU, HMRC may very well have accepted the severance in the absence of a signed Notice and the expense of court proceedings might have been avoided.
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