Probate law

Charles Raymond Faulkner (Trustee of Rupert Charles Adams, deceased) v Inland Revenue Commissioners (SPC no.000278) (2001) LTL 21/8/2001 is another case on rights to occupy property after death and the creation of interests in possession for inheritance tax purposes.

It is similar to the recent decision of Woodhall (PRs of Woodhall deceased) v IRC (2000) Simon's Weekly Tax Intelligence page 1653.The testator (T) directed in his will that H and his wife or the survivor of them should be permitted to live in a house which formed part of T's estate for as long as they so wished.

T died in March 1981, after which H and his wife moved into the property.

H survived his wife and died in August 1998.

The Inland Revenue Commissioners contended that at the date of his death H had an interest in possession in settled property within section 49(1) of the Inheritance Tax Act 1984.

The surviving trustee of T's will (F) contended that the will created neither a settlement nor an interest in possession.

It merely gave directions to allow H and his wife a licence to occupy the property.

He also argued that if H had had any beneficial interest, it was shared with the three residuary beneficiaries under the will so any interest in possession enjoyed by H was in one quarter only of the value of the property.

The special commissioners agreed with the Revenue and dismissed F's contentions.The will did not give any dispositive powers to the trustees to decide whether or not H and his wife should occupy the property.

The trustees had no discretion to refuse any request by H and his wife that they be permitted to occupy the property.

It followed that the will created a settlement in favour of H and his wife and that H had an interest in possession at the date of his death.

That interest was not shared with the residuary beneficiaries, who had no interest at all in the property during H's occupation.

Like Woodhall, the case is a good illustration of the significance for inheritance-tax purposes of having a right to occupy a property as opposed to merely being permitted to do so.

In Han and Yau t/a Murdishaw Supper Bar and Others v Commissioners of Customs & Excise (2001) The Times, 3 August, the Court of Appeal (Sir Martin Nourse dissenting) held that penalties for dishonest evasion of VAT imposed under section 60(1) of the Value Added Tax Act 1994 and section 8(1) of the and Finance Act 1994 gave rise to criminal charges within the meaning of article 6.1 of the European Convention on Human Rights.

As a result anyone required to pay a penalty under either of those Acts is entitled to the protection afforded by the fair trial provisions contained in article 6 of the convention.Although the imposition of a penalty did not give rise to a criminal record and imprisonment was not a possibility, these were not necessary elements.

It is sufficient that the penalty is substantial and that its purpose is punitive and deterrent.Readers will have noticed that in King v Walden (2001) The Times, 18 May, income tax penalties were held to be criminal in nature for this purpose.

A decision on inheritance tax penalties cannot be far away.

By Lesley King, College of Law, London