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Clifton Ingram client wins in High Court and Court of Appeal

Inheritance Tax has always been regarded as an unfair tax – why should you be taxed all your life on income and capital gains, only to be taxed again on what is left when you die – but fair or not it is here to stay.

Until 2008 there had been talk by the Conservatives of raising the threshold beyond which the tax is paid (called the nil rate band) to £1m. In response to that the Labour government of the day allowed the executors of a surviving spouse to elect to use the unused nil rate band of his or her pre-deceased spouse.

Mrs Smith made a Will in 2001 in which she left “such sum as is at the date of my death the amount of my unused nil rate band for Inheritance Tax” to her family and the residue to The Woodland Trust, a charity. In so doing she avoided having to pay any Inheritance Tax. At that time the value of the residue was certainly less than the nil rate band of £234,000.

The law then changed, as already mentioned, but Mrs Smith was not interested in altering her Will. When she died in 2011 her estate was worth about £680,000. Her husband had not used his nil rate band, so her executor sons elected to use it, believing understandably that the family would receive £650,000 (the nil rate band had by then increased to £325,000 and her nil rate band could be doubled) and the residue would go to the charity.

The Trust was advised that the wording of the Will meant that only £325,000 would pass to the family, and rest would go to the charity. The family stood their ground and the charity lost in the High Court and the Court of Appeal.

The morals of this story are: ensure you review your Will regularly and certainly after any significant change in the law. Charities will fight for what they believe they should receive from an estate, so ensure your Will is entirely unambiguous.

See the case report in The Law Society Gazette

For more details contact Robert Cherry.

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