Analysis
This appeal related to an inheritance tax notice of determination dated 22 May 2013 in respect of the estate of Dr Olive Scott (Olive) who died on 4 March 2007. Olive was predeceased by her husband Professor James Scott (James). The appellant, Malcolm Scott (Malcolm), was her surviving son and co-executor. The other executor had been Olive’s son Alistair Scott (Alistair), who died on 7 November 2009. There had been a dispute between Alistair and Malcolm as to the correct inheritance tax position in relation to certain paintings, and this had led to their filing separate IHT400 accounts in respect of Olive’s estate.
The appeal was concerned with three groups of paintings (the ‘Group 1’, ‘Group 2’ and ‘Group 3’ paintings respectively) said by HMRC to be part of Olive’s estate for IHT purposes. Olive and James had purported to make a gift of the Group 1 paintings to Malcolm and Alistair in 1985. At the time, the Group 1 paintings were physically transferred to Malcolm by removing them from the wall of the family home where they were hung, handing them individually to Malcolm and re-hanging them at his direction. Neither Alistair nor Malcolm has a permanent address elsewhere at that time. For an extended period their accommodation was modest and insecure and unsuitable for storing the paintings.
The Group 2 paintings originally belonged to Dr Janet Steel (Janet), Malcolm’s great aunt. Janet had declared an intention to gift her paintings to Malcolm and Alistair in 1986. However her paintings remained in her house until 1991, when she entered a care home. At that point the paintings were delivered to James. Janet later died in December 1992. The Group 3 paintings were either held in Olive’s estate or were gifts with reservation.
The issues for the tribunal to determine were (1) whether Olive and James make an effective gift of the Group 1 paintings to Malcolm and Alistair in 1985; and (2) whether Janet make an effective gift of her paintings to Malcolm and Alistair in 1986, or alternatively 1991 (when she entered care).
Held (allowing the appeal):
- 1) The alleged gift by Olive and James in 1985 was governed by English law. In the absence of a deed of gift, there has to be intention and delivery. Delivery involves a physical transfer, putting the done in control of the property (Re Cole [1963] 3 AER 433). There had been an effective gift in 1985. From 1985 until their physical removal the parents held the paintings on behalf of Malcolm and Alistair.
- 2) The gift by Janet was to be determined by scots law as rights in corporeal moveable property are regulated by the lex situs. Delivery in Scots law requires a physical act. There was no physical transfer that could amount to delivery until 1991 when the contents of Janet’s flat were removed. The joint gift was made in 1991 when Janet had to enter care, and her paintings were delivered by her to James on behalf of Malcolm and Alistair.
3) Whether the Group 3 painting were treated as gifts with reservation or as retained within Olive’s estate, they would be liable to IHT charge.
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