Anti-avoidance measures

In Eversden v CIR [2003] STC 822, the Court of Appeal followed the Special Commissioner and Mr Justice Lightman in finding in favour of the taxpayer.

The Court of Appeal agreed that the reservation of benefit provisions contained in section 102(5) of the Finance Act 1986 do not apply to the extent that the gift is exempt by virtue of the spouse exemption.

If one spouse gives the other an interest in possession (however brief) that is equivalent in inheritance tax terms to giving the property itself.

There is then no room for the reservation of benefit rules to apply.

As Mr Justice Carnwath said: 'If that is of concern to the revenue, they must look for correction to Parliament, not to the courts.'

Unsurprisingly, new provisions were inserted into the Finance Act 2003 to prevent taxpayers exploiting the reservation of benefit rules by so-called 'Eversden schemes'.

Section 185 disapplies the current exception from section 102(5) of the Finance Act 1986, for gifts to a spouse where gifts are made:

- On or after 20 June 2003; and- Into a trust in which the donor's spouse enjoys an interest in possession; and- The interest in possession comes to an end (whether on the donee's death or otherwise); and- The subsequent use of the gift is such that it will count as a taxable 'gift with reservation' if the gift is made at the time the interest in possession comes to an end.

Inheritance Act claims

It is difficult for former spouses to establish successful family provision claims.

This is because it is normally regarded as reasonable for the deceased to make no provision for such a person.

Barrass v Harding [2001] 1 FLR 138 and Cameron v Treasury Solicitor [1996] 2 FLR 716, are both cases where the Court of Appeal refused applications stating that, where accounts have been settled between the parties at the divorce stage, there must be some special consideration to justify making an award.

However, in Parnall v Hurst (2003) LTL, 25 July, Judge Peter Langan QC refused to strike out a claim by a former wife.

He said that her claim could not be regarded as one which was doomed to fail if it got to trial.

It would not necessarily succeed, but a respectable case could be made for making some award, even if a modest one, in her favour.

He acknowledged that it was rarely appropriate for the court to interfere where financial settlements had been agreed and settled between a former husband and his ex-wife.

Here, however, the former wife had a number of points in her favour:

- She was being maintained by the deceased at the rate of 6,000 a year and that income had been abruptly terminated.

- She was in a parlous financial state as a result of the cessation of maintenance on her former husband's death.

- She was also entitled to rely on the relative shortness of the deceased's marriage to his second wife and on the fact that the second wife K had the benefit of the deceased's occupational pension.

There were procedural defects in her claim but these should be dealt with by imposing conditions as to costs rather than by striking out her claim.

Churchill v Roach [2003] WTLR 779, was an application by a cohabitee.

She and the deceased owned adjoining properties which they had knocked through to make one.

The deceased had died unexpectedly before a plan to put the properties into joint names was carried out.

The claimant was unable to establish a constructive trust or to establish a proprietary estoppel claim.

She was not able to show that the parties had lived together as husband and wife for the necessary two years before death.

However, she was able to establish that she had been maintained by the deceased.

On that basis, Judge Norris QC made an order in her favour.

Proprietary estoppel

There have been a number of decisions recently emphasising that orders should be proportionate to the detriment suffered.

See Campbell v Griffin, Laverick, Bennett and West Sussex County Council [2001] WTLR 981 and Jennings v Rice [2002] WTLR 367.

This approach was taken in the recent decision in Earl of Macclesfield v The Honourable Jocelyn George Dudley Parker v The Beechwood Estates Company v Fentville Ltd (2003) 24 July.

The claimant, the ninth Earl of Macclesfield, had given up a tenancy to a farm on the family estate when his father died.

He moved into the castle which was owned by a company created by his grandfather.

Formal terms for the claimant's occupation were never agreed.

The company now claimed vacant possession on the basis that the claimant had merely a tenancy at will which had determined.

The claimant alleged that he had the right to remain for life.

Mr Justice Lewison held that the claimant had no legal or equitable right to remain in the castle, but was entitled to reasonable notice of at least two years to vacate it.

When the claimant moved to the castle and surrendered the farm tenancy, he did not believe that he would acquire a right to live in the castle for his lifetime.

He had the expectation that he and the company would agree the terms of a tenancy and that the tenancy would be renewed from time to time unless the parties were unable to reach agreement, in which case he would have to leave.

The maximum extent of a claimant's equity was his own expectation.

This claimant's expectation was too vague and indefinite to form the basis of his proprietary estoppel claim.

However, the elements of proprietary estoppel were satisfied to the limited extent that:

- The claimant moved to the castle expecting that he would negotiate and agree terms for his occupation; - The holding company encouraged him in that belief; and - The claimant acted to his own detriment by giving up his farm tenancy.

Therefore, it was appropriate to provide some relief.

Based on the claimant's evidence, it would take two years to catalogue and pack his library and to find somewhere suitable to house it, himself and his family.

Any equity that the claimant had raised would be satisfied by requiring the company to give him not less than two years' notice to vacate.

By Lesley King, College of Law, London