Probate law

By Lesley King, College of Law, London

Inheritance tax and capital gains taxMelville and Others v Inland Revenue Commissioners (2000) The Times, 27 June

The present action was in effect a test case considering the efficacy of a scheme set up to allow taxpayers to claim hold over relief on the transfer of assets to a discretionary trust at the same time as reducing the value of the transfer for inheritance tax purposes.

Lightman J found for the taxpayer.Capital gains tax is chargeable on transfers to settlements.

Holdover relief is available where the transfer is a chargeable one for inheritance tax purposes.

The taxpayer wanted to create a chargeable transfer of all the assets going into the settlement to allow the claim for holdover relief while ensuring that the value transferred was low to reduce the inheritance tax actually paid.The taxpayer transferred assets subject to a right to require the trustees to return the funds to the settlor after 90 days.

The issue was whether or not this right was 'property' included in the estate of the settlor after the transfer.If it was, it was common ground that the value of the right was virtually the value of the assets transferred subject to a small discount to cover the possibility of the settlor dying within 90 days.

In this case the value of the transfer would be minimal (the value being the reduction in value of the estate after the transfer).Lightman J held that the right was a proprietary right.

It was an item of property which was part of the estate after the transfer and the reduction in value of the estate was, therefore, small.

Family provisionBarrass v Harding and Newman, (2000) LTL, 27 June

This is a fairly unsurprising decision of the court of appeal reversing the first instance decision on a former wife's claim after a 'clean break' settlement.The deceased husband and wife (the applicant) were divorced in 1964.

The wife's claim for ancillary relief was dismissed by consent.

The parties separately agreed that the deceased would let a flat to the applicant at a peppercorn rent and if she ever wanted to leave he would pay her 1,500.

This happened.There was a breakdown in the relationship between father and son.

The father made various wills none of which left anything to the son.

Shortly before his death, the father was reconciled with his son.

He gave his son a car and insured it for a year.

However, there was no change to the will.The applicant was in dire financial straits living with her son who was also badly off.

She applied for financial provision from the estate.The recorder found that she would not normally have had a claim.

However, there were special circumstances which allowed him to make an award.

These werel The estate was substantial (200,000)l The reconciliation of father and son was significant.l The parties had divorced before the coming into force of the Matrimonial Proceedings and Property Act 1970, with its more generous provisions.The Court of Appeal (led by Dame Elizabeth Butler Sloss) rejected this.

The Act did not entitle all former spouses to relief.

There was no evidence of any continuing relationship.

The agreement was made under the legislation in force at the time.

The size of the estate was not a special circumstance and father and son's relationship was not relevant to the applicant's case.