Charles Holbech

December 31, 2024 • Rescission, Tax, Trusts • 70

ADVERSE TAX CONSEQUENCES AND RESCISSION OF VOLUNTARY TRANSACTIONS

NOTE: This article was published in December 2024 and reflects the law as it stands on the date of publication and not at any later date.

The aim of this paper is to analyse the circumstances in which a voluntary disposition, such as a gift by an individual (often, but not invariably, to a trust) or the exercise of a discretionary power by trustees, may be set aside or rescinded on the grounds of a mistake as to the tax consequences of the disposition.

Following the Supreme Court’s decision in Pitt v Holt [2013] 2 AC 108, a voluntary disposition may be set aside on the grounds of mistake where:

(1) The gift was made by the donor, acting under a mistake of law or fact, as opposed to ignorance, inadvertence or misprediction;

(2) The mistake was serious; and

(3) It would be unjust or unconscionable on the part of the donee to retain the property.

The effect of rescission is to undo the transaction from the beginning. It is thereafter treated for the purposes of the general law, including tax law, as if it never took place. Any IHT paid or payable in consequence of the transaction would have to be repaid or would not be payable (IHTA 1984, s. 50).
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September 30, 2021 • Wills • 3659

No Contest Clauses and Inheritance (Provision for Family and Dependants) Act 1975 (“the 1975 Act”)
NOTE: This article was published in September 2021 and reflects the law as it stands on the date of publication and not at any later date.

Introduction

A testator may be advised to:
- make limited provision for a person who may have a claim under the 1975 Act by way of a legacy, or share of residue, or as the beneficiary of a trust; and
- include a no contest, or forfeiture, clause to the effect that any beneficiary who brings a claim under the 1975 Act shall be excluded from benefit.
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August 16, 2021 • Trusts • 1642

Discretionary objects and the beneficiary principle

The purpose of this article is to examine the relationship between “the beneficiary principle” and the rights of objects of discretionary powers of appointment or advancement exercisable by trustees or others on a fiduciary basis.

The article can be read for free on the Oxford University Press website by clicking on the following link (opens in new window).

https://academic.oup.com/tandt/advance-article/doi/10.1093/tandt/ttab018/6320917?guestAccessKey=fbcabb12-373a-45f9-96bf-85a64450e360
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December 22, 2020 • Inheritance Tax, Trusts, Wills • 3967

Wills and Post-death Tax Planning
1. NIL RATE BAND TRUSTS
1.1. Standard Will
It has long been standard IHT planning for a married testator (“T”) to leave:
(a) a legacy up to the maximum nil rate band (“NRB”) to a discretionary trust for a class of beneficiaries including the surviving spouse (“S”), children and remoter issue; and
(b) the residue to S absolutely, or on IPDI trusts.
In this way, T’s NRB is fully utilised on his death, no IHT being payable as the chargeable transfer is taxed at 0%.
Before the introduction of the transferable nil rate band (“TNRB”) it was not good tax planning for T to leave everything to S, and for S to leave their combined property to the children. On S’s death, S and T’s combined estate would be subject to IHT, but only one (S’s) NRB would apply. T’s NRB would have been wasted.
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January 25, 2020 • Probate, Wills • 6301

Probate Claims: A detailed analysis of the grounds for challenging suspicious wills

NOTE: This article was published in November 2019 and reflects the law as it stands on the date of publication and not at any later date.

The paper can be downloaded as a PDF.Download

1. SUSPICIOUS WILLS
There are a number of classic features common to probate claims where the validity of a Will is challenged. A testator typically executes a new Will in favour of one or more family members (often to the exclusion of others). The new Will represents a significant departure from the terms of previous Wills, which had divided the estate equally between the testator’s children or nearest relatives. The terms of the Will are, therefore, surprising or suspicious, at least to the parties who wish to challenge its validity.
The testator may have been elderly and/or in failing health, perhaps in the early stages of dementia, or suffering from the result of a recent bereavement. The golden rule may not have been observed if a doctor did not certify the testator’s capacity before the Will was executed.
The testator is typically vulnerable and susceptible to influence. The primary beneficiary under the Will may have been in the position to influence the testator, by virtue of their dominating personality or position of trust and/or may have been involved in the preparation or execution of the Will.
There may, however, be little or no direct evidence that the beneficiary had sought to coerce the testator into execute the Will, or that the Will has been procured by a fraudulent statement. However, that is the strong suspicion of the beneficiaries under the testator’s previous Will. In any event, there is a suspicion that the testator was not actually aware, or did not approve, of the contents of the Will as representing his or her wishes. A solicitor may not have been involved; or, if a solicitor was involved, there may be grounds for alleging that the solicitor failed to take proper precautions to ensure that the contents of the Will were brought home to the testator.
Lastly, there may be a lack of positive evidence, or unsatisfactory evidence, from the witnesses or others, as to whether the proper formalities were observed in the execution of the Will in accordance with s. 9 of the Wills Act 1837.
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November 20, 2019 • Professional negligence • 3529

Professional Negligence: Wills, Probate and Tax

Delay in preparing Will

The starting point is the House of Lords’ decision in White v Jones [1995] 2 AC 207 in which it was confirmed that that a solicitor or will draftsman may be liable to disappointed beneficiaries under a Will where the solicitor is guilty of undue delay in drawing up a Will for execution by the testator before the testator’s death.

In White v Jones the testator quarrelled with his two daughters, and executed a Will cutting them out of his estate. He was then reconciled with his daughters. On 17 July 1986 the defendant firm of solicitors received a letter from the testator asking them to prepare a new Will to include legacies of £9,000 each to his daughters. The testator died on 14 September 1986, without the new Will having been put in place (a delay of 59 days after receipt of the letter of instruction). The defendant firm of solicitors were guilty of negligent delay.

In spite of the absence of any contractual relationship between the solicitor and the daughters, the daughters were awarded a cause of action in tort to recover damages equal to the value of the legacies to which they would have been entitled under the Will (£18,000).
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July 5, 2019 • Trusts • 4084

Court Authorisation Of Self-Dealing By Trustees In The Light Of Chaston v Chaston

Charles Holbech has recently joined Radcliffe Chambers. In this article he addresses the role of the court in authorising a self-dealing transaction by a trustee, such as the sale of land by the trustee to himself. The self-dealing rule is that such a sale is voidable at the instance of a beneficiary who has not assented to the sale, and who is not guilty of unreasonable delay.

Charles acted in a leading case on self-dealing by trustees: Newman v Clarke [2016] 4 WTLR 26 in which Charles succeeded, on a summary judgment application, in establishing that there was no breach of the self-dealing rule where a tenant unilaterally exercised a statutory right to purchase the freehold of land of which the tenant was a trustee, as the statutory right had been acquired before the tenant became a trustee.

In this article Charles considers the recent case of Chaston v Chaston [2018] EWHC 1672 (Ch) in which the Court authorised a sale at valuation to a beneficiary of a property of which the beneficiary was also a trustee, despite opposition from two beneficiaries who were pressing for a sale on the open market.

STRICT RULE

The traditional approach of the courts is that a trustee is not entitled to acquire trust property, if even a single beneficiary objects, notwithstanding that the trustee did not, in fact, take advantage of his office and the price is a fair one (Re Thompson’s Settlement [1986] Ch 99). The court will not, therefore, generally authorise such a self-dealing (see In Ex p. James (1803) 8 Vesey Junior 337 where the court refused to permit the solicitor to the trustee-in-bankruptcy to purchase property in the bankrupt’s estate).
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December 16, 2018 • Inheritance Tax • 4205

Residential Nil Rate Band: 1. Aim of Legislation
NOTE: This article was published in December 2018 and reflects the law as it stands on the date of publication and not at any later date.

The paper can be downloaded as a PDF here.

1. Aim of legislation

The Government announced in the July 2015 Budget that an additional nil rate band (“RNRB”) would be introduced where a deceased person’s interest in their residence is “closely inherited” by their children and other descendants, on a death on or after 6 April 2017. The relevant legislation is contained in sections 8D to 8M of the Inheritance Tax Act 1984 (“IHTA 1984”), which came into force on 18 November
2015.

The objective was to meet the criticism that the estates of persons, who are by no means wealthy, were being dragged into the IHT net by virtue only of the historic rise in residential property prices. Why should an ordinary person, who has worked hard all their life, paying tax on income used to finance the purchase of their home, not be able to leave their home to their children free of IHT? One solution is to increase the value at which IHT is charged at a nil rate, provided that the deceased’s estate includes an interest in their home, and that interest is inherited by direct descendants.

Unfortunately, the legislation is of mind-blowing complexity and almost impossible, even for a lawyer, to decipher, let alone apply. It introduces a whole host of different terms, many of which are represented by symbols such as NV/100, TT or VT. As will be seen, there are many circumstances in which the RNRB is of little or no assistance, e.g. in the case of high-value estates, or conversely where the deceased’s residence is of low value, and also where the deceased has no direct descendants, or none whom he or she wishes to benefit.

It might simply have been better to have increased the standard nil rate band. Nonetheless, an attempt is made in this paper to unravel the complexities of the RNRB, and to give some guidance as to its impact on will drafting, and lifetime tax planning.

1.2. Summary of contents

This paper contains the following sections:
1. Introduction;
2. Residential enhancement;
3. Closely inherited;
4. Estates above £2m;
5. Brought-forward allowance;
6. Downsizing relief;
7. Residence nil rate amount;
8. Will drafting;
  8A. Life interest trusts for the surviving spouse;
  8B. 2-year discretionary trusts;
9. Lifetime planning.
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December 16, 2018 • Inheritance Tax • 4233

Residential Nil Rate Band: 2. Residential Enhancement

NOTE: This article was published in December 2018 and reflects the law as it stands on the date of publication and not at any later date.

The paper can be downloaded as a PDF here.

2.1. Conditions

The residential enhancement will be available where:
(a) a person dies on or after 6 April 2017 (IHTA 1984, s. 8D(1)); and
(b) that person’s estate immediately before death included a qualifying residential interest (“QRI”) (IHTA 1984, s. 8E(1)(a));
(c) which is “closely inherited” (IHTA 1984, s. 8E(1)(b)).
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December 16, 2018 • Inheritance Tax • 4021

Residential Nil Rate Band: 3. Closely Inherited

NOTE: This article was published in December 2018 and reflects the law as it stands on the date of publication and not at any later date.

The paper can be downloaded as a PDF here.

3.1. Meaning of closely inherited

The QRI in the deceased person’s estate must be “closely inherited”. IHTA 1984, s. 8J deals with what is meant by “inherited”, s. 8K with what is meant by “closely”.
In relation to the death of any person (“D”), something is “closely inherited” if (IHTA 1984, s. 8K) it is “inherited” by:
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ADVERSE TAX CONSEQUENCES AND RESCISSION OF VOLUNTARY TRANSACTIONS

No Contest Clauses and Inheritance (Provision for Family and Dependants) Act 1975 (“the 1975 Act”)

NOTE: This article was published in September 2021 and reflects the law as it stands on the date of publication and not at any later date.

Discretionary objects and the beneficiary principle

Wills and Post-death Tax Planning

Probate Claims: A detailed analysis of the grounds for challenging suspicious wills

NOTE: This article was published in November 2019 and reflects the law as it stands on the date of publication and not at any later date.

Professional Negligence: Wills, Probate and Tax

Court Authorisation Of Self-Dealing By Trustees In The Light Of Chaston v Chaston

Residential Nil Rate Band: 1. Aim of Legislation

NOTE: This article was published in December 2018 and reflects the law as it stands on the date of publication and not at any later date.

The paper can be downloaded as a PDF here.

Residential Nil Rate Band: 2. Residential Enhancement

NOTE: This article was published in December 2018 and reflects the law as it stands on the date of publication and not at any later date.

The paper can be downloaded as a PDF here.

Residential Nil Rate Band: 3. Closely Inherited

NOTE: This article was published in December 2018 and reflects the law as it stands on the date of publication and not at any later date.

The paper can be downloaded as a PDF here.

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ADVERSE TAX CONSEQUENCES AND RESCISSION OF VOLUNTARY TRANSACTIONS

No Contest Clauses and Inheritance (Provision for Family and Dependants) Act 1975 (“the...

Discretionary objects and the beneficiary principle

Wills and Post-death Tax Planning

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Charles Holbech

NOTE: This article was published in September 2021 and reflects the law as it stands on the date of publication and not at any later date.

NOTE: This article was published in November 2019 and reflects the law as it stands on the date of publication and not at any later date.

NOTE: This article was published in December 2018 and reflects the law as it stands on the date of publication and not at any later date.

The paper can be downloaded as a PDF here.

NOTE: This article was published in December 2018 and reflects the law as it stands on the date of publication and not at any later date.

The paper can be downloaded as a PDF here.﻿

NOTE: This article was published in December 2018 and reflects the law as it stands on the date of publication and not at any later date.

The paper can be downloaded as a PDF here.﻿

Recent Posts

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Copyright notice and disclaimer

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Pages

Charles Holbech

The paper can be downloaded as a PDF here.

The paper can be downloaded as a PDF here.