A round-up of legal updates for the Wills and probate industry over the past month is as follows.
Tax policy – mini Budget and U-turn on 45% tax cut
The new Chancellor delivered his Growth Plan (or “mini Budget”) on 23 September with a raft of tax cuts designed to boost the economy and support households; however, after the resulting market turmoil, warnings from the International Monetary Fund, and emergency intervention from the Bank of England, on 3 October the government announced a U-turn on one of its mini Budget announcements: the abolition of the 45% additional rate of income tax.
The main points to note for trusts and estates from the mini Budget (as adjusted by the U-turn on 3 October) are as follows.
- The Trust rate of income tax will remain at 45% (not reduced to 40% as per the mini Budget).
- It is assumed that the U-turn on the additional rate of income tax will also apply to the dividend additional rate and this will remain (subject to the below).
- Whilst not confirmed, it is assumed that the mini Budget reversal of the 1.25% increase in dividend rates (which took effect in April this year) will still stand.
- Taking together these two announcements on the divided rate, this will mean that the trust rate for dividends (currently 39.35%) will be 38.1% from April 2023, not 32.5% as per the mini Budget.
Whilst there have been conflicting statements from the government over recent days, it is understood that the Chancellor’s fiscal statement (currently scheduled for 23 November) will be brought forward to later in October. There will be a full Budget in spring 2023 (not this autumn as per the usual fiscal timetable).
Capital gains tax (“CGT”) and inheritance tax (“IHT”) were untouched in the mini Budget although these have long been up for reform and simplification. It remains to be seen whether, should the signs of expected economic growth not arrive, there will be more appetite to use reforms to these taxes to help plug the fiscal deficit. New UK Chancellor of the Exchequer announces significant tax cuts | STEP; 2022 Autumn Statement (Growth Plan 2022): retention of additional rate of income tax | Practical Law (thomsonreuters.com); HM Treasury announces autumn Fiscal Plan and spring Budget | Practical Law (thomsonreuters.com)
Contentious probate – 1975 Act case
In Ramus v Holt, 2022 EWHC 2309 (Ch), the High Court dismissed a widow’s challenge to her husband’s Will under the Inheritance (Provision for Family and Dependants) Act 1975 (“1975 Act”) made on the grounds that the Will left her with a life interest that could be terminated at any time by the trustees. The deceased and his wife were in the process of separating and divorcing at the time of the deceased’s death (by suicide). The wife claimed that the Will did not provide her with reasonable financial provision as the trustees could stop payment of the income to her at any time and could refuse to advance capital. Her concern was also founded on a personality clash with her daughter who was one of the trustees. The Court dismissed the claim, finding that financial provision did not become “unreasonable” because of the identity of the trustees, particularly where there were other trustees who would need to consent to the exercise of the power in question. Widow’s tense relationship with trustee were not grounds for reasonable provision claim, finds EWHC | STEP
Tax – trusts and Business Asset Disposal Relief
The Court of Appeal judgment in The Quentin Skinner 2015 Settlement L and others v HMRC  EWCA Civ 1222 has been published. The case relates to CGT and business asset disposal relief (“BADR”); specifically the circumstances in which BADR can be claimed on a disposal of business assets by trustees. Under s.169J of the Taxation of Chargeable Gains Act 1992, there needs to be a “qualifying beneficiary” (“QB”) for BADR to apply. The issue in this case was whether the QB should have held an interest in possession in the trust’s shares throughout the one-year period ending on the date of the disposal or whether the individual only needed to be a QB at the time of the disposal. The First-tier Tribunal found the latter; the Upper Tribunal overturned this decision, but the Court of Appeal has now upheld it. As the judgment contradicts HMRC’s view in their CGT Manual, it is likely that HMRC will try to appeal. Individual only needs to be qualifying beneficiary at time of disposal by trustees for entrepreneurs’ relief (Court of Appeal) | Practical Law (thomsonreuters.com)
Contentious estates – 1975 Act order before grant
In Antonio v Williams  EWHC 2383 (Ch), the High Court made an order under the 1975 Act for reasonable financial provision to be made for the deceased’s twelve year-old nephew, awarding him £50,000. The nephew (acting through his father as litigation friend) was able to successfully claim under ss.1(1)(d) and 1(1)(e) of the 1975 Act on the basis that he was treated as a child of the family or was being maintained by the deceased. The nephew’s mother had been unable to look after him from birth and he was taken in by the deceased who cared for and maintained him until her death in 2016. One of the significant aspects of the case is that the order was made before a grant of representation had been issued in the deceased’s estate. A note in the current White Book (57.16.6) indicates that there must be a grant of representation before the making of an order; however, the Court cited s.4 of the 1975 Act which made clear that nothing prevented the making of an application before representation was taken out. Inheritance Act 1975: Court can make reasonable financial provision order before grant is issued (High Court) | Practical Law (thomsonreuters.com)
Contentious estates – removal of executor
Estate of McDonald (Deceased), Re  EWHC 2405 (Ch) is a case that relates to the removal or passing over of an executor. The High Court ordered the executor to be passed over (under s.116 of the Senior Courts Act 1981) on the basis that there were “special circumstances”. These included: the executor’s refusal to rule out a challenge to the validity of the Will; disputes with almost every individual involved in the estate; and a complete breakdown in relations with other beneficiaries. Alternatively, the court was satisfied that it would be appropriate to remove the executor under section 50 of the Administration of Justice Act 1985. There was also a conflict point because the executor was a beneficiary of a lifetime trust created by the deceased and the executor wished to pursue a claim against the deceased’s estate in his capacity as beneficiary of that trust; however, the Court decided that this conflict alone was not sufficient to pass over or remove the executor as the deceased had deliberately put the executor in that conflicted position and licenced him to act. Court would not remove executor on basis of conflict arising from testator’s own acts (High Court) | Practical Law (thomsonreuters.com)
Tax – proposed IHT exemption for siblings
A private members’ bill (the Inheritance Tax Act 1984 (Amendment) (Siblings) Bill) has been introduced to Parliament to make transfers between siblings during lifetime and on death exempt from IHT in certain circumstances. It had its first reading in the House of Lords in July. The Bill follows the European Court of Human Rights case of Burden and another v UK (29 April 2008) involving two elderly unmarried sisters who argued that the UK’s IHT legislation was discriminatory in denying them the equivalent of the IHT spouse exemption. Their case was unsuccessful but brought the issue of siblings’ tax rights to the forefront. Proposal to allow exempt transfers between siblings | Taxation
Contentious probate – inheritance claim statistics
According to data from the Ministry of Justice, the number of unmarried couples making inheritance claims has increased fourfold over the last fifteen years. In 2007, 43 inheritance claims were made, but this rose to 192 in 2020 and 165 in 2021. The myth of a “common law marriage” is likely to be a contributing factor with many cohabitants failing to make provision for their partner after death, relying on them having rights automatically by law, when this is not currently the case. EPrivateClient – article (paminsight.com)