Weekly Tax Update – Monday, 27 October 2014

1 IHT, TRUSTS AND CHARITIES

1.1 Meaning of 'my unused nil rate' in a Will

The Court of Appeal has held that the amount due to the residuary beneficiaries for a legacy described in the will of a Mrs Smith as 'my unused nil rate band (NRB) for IHT' included the increase available, under IHTA 1984 s.8A, for the unused percentage of her deceased spouse's remaining NRB. Charities seeking a bequest in a will may wish to point out to individuals considering a charitable bequest the impact of this case.

In The Woodland Trust v Loring & ORS [2014] EWCA Civ 1314 Lewison LJ considered that 'we have to look to the purposes and values which are expressed and implicit in the wording of the will in order to find the answer' of whether the NRB definition included the amount added by IHTA 1984 s.8A.

In his judgement, 'the implicit purpose of the will was to give as much as possible to Mrs Smith's family without incurring IHT and to give the rest to charity. As Lord Neuberger explained in RSPCA v Sharp [2010] EWCA Civ 1474;[2011] 1 WLR 980 at [44] the purpose of using the nil-rate band is usually to avoid paying IHT...... In my judgement that was also the implicit purpose of this will.' Therefore by electing under IHTA 1984 s.8A the executors were maximising the amount to be paid over without incurring IHT.

In considering Mrs Smith's intentions when she made the will, Lewison LJ points out that 'at the date of her will she could have no expectation that the residuary beneficiary would receive any particular amount. Indeed if the Chancellor were to increase the nil- rate band by more than inflation...... the residuary gift might diminish or fall away entirely'.

As there was no implicit direction as to how the unused NRB was to be interpreted, the increase of the NRB by an election under IHTA 1984 s.8A for Mrs Smith's late spouse's unused NRB would be no different than any other legislative change to the NRB after the will was created and as such the NRB legacy was £650,000 not £325,000.

www.bailii.org/ew/cases/EWCA/Civ/2014/1314.html

2 PAYE AND EMPLOYMENT MATTERS

2.1 Draft guidance on pension flexibility

HMRC has replaced its previously issued draft guidance on the new pension flexibility available from April 2015. The updated draft guidance contains four new chapters:

changes to the Bill following consultation (chapter 2); death benefits (chapter 7); reporting (chapter 8); and overseas aspects (chapter 9). www.gov.uk/government/uploads/system/uploads/attachment_data/file/365505/Annex_D_Flexibility_15_Guidance.pdf

2.2 Employment related securities - relevance of concessionary practice

Mr Bruce-Mitford acquired automatically convertible deferred shares in his employer in 2002 that were later converted to ordinary shares. HMRC chose not to apply its restricted concession not to apply legislation retrospectively on the conversion. On appeal to the First-tier tribunal (FTT) it was held that the FTT had no jurisdiction to overturn HMRC's decision.

Under the...

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