Analysis
The appellant was the personal representative and trustee of the estate of Mrs Sussman (the deceased) who died in 2006. The appeal concerned whether a residential property (the property) was part of the deceased’s estate, and the treatment of the property for IHT purposes. The appeal also concerned appeals out of time, as the appellant’s application to bring an appeal out of time was heard as a preliminary matter immediately before the substantive appeal.
The property had belonged to the deceased’s late husband. The deceased received an interest in possession in the property under the terms of her late husband’s will following his death in 1991. Under the terms of her late husband’s will, the deceased received a mere right to live in the property during her lifetime (and a right to live in a replacement property on the same terms). If she ceased to occupy the property (or any replacement property) it would fall into residue, and the deceased was entitled to income from residue during her lifetime.
The deceased entered into a deed of trust on 15 May 1998 (the deed). Under the terms of the deed, the deceased purported to declare that she held ‘all Properties or Land […] both legally and beneficially on trust for the following beneficiary’, naming the appellant. Although ‘property’ was not a defined term, ‘property address’ gave the address of the property. Notwithstanding that the appellant was named beneficiary, under the terms of the deed, the appellant was liable to be removed or became one of a larger group of beneficiaries.
In fact, the deceased lived in the property until her death in 2006. The first IHT 200 account filed in respect of the deceased’s estate included the property. The property was later sold with the consequence that the IHT ceased to be payable by instalments and became due in full. This led HMRC to issue the HMRC issued a notice of determination on 14 September 2012 (the notice).
The appellant appealed against the notice on 12 October 2012 (within the time limit for doing so), and this appeal was rejected. The appellant subsequently changed the grounds of appeal in June 2014 but HMRC did not become aware of the changed grounds until 11 June 2014, and were not asked to treat the matter as a notice of appeal out of time until August 2015. The appellant’s new approach to the IHT position was contained in a new IHT 200, which was prepared on the basis that the residential property did not form part of the estate of the deceased, reducing the IHT payable to zero.
As a consequence of s49 IHTA, the interest in possession given to the deceased and her husband’s will was treated as beneficially entitled to the property in which the interest subsisted. Therefore if the deceased continued to enjoy an interest in possession until she died, she would have been treated as beneficially entitled to the property when she died and it would have formed part of her estate, and part of the deemed transfer of value on death.
HMRC argued that either the deceased’s interest in possession continued until she died, or she transferred that interest to the trust created by the deed, and continued to enjoy it, such that it was treated as property subject to a reservation. The appellant attempted to argue that the effect of the deed had been to reduce the amount of IHT payable in respect of the property, apparently on the basis that the deceased had transferred the post-1998 increases in value in the property.
Held:
- 1) The appellant’s application to make the appeal out of time was granted. There had been considerable delays, but the technical arguments were not straightforward and the appellant had not been aware of the advice given to the deceased. Both parties attended the hearing prepared to present their case on the day without asking for further time. The work involved in presenting the case was very small compared with the time that had already been spent by both parties in preparing to do so. Therefore the balance was in favour of allowing the appellant to present his case.
- 2) When the deed was executed in 1998, the interest held by the deceased was a mere right to occupy which would come to an end should she cease to occupy the property. This interest could not be the subject of the trust declared in the deed.
- 3) As the deceased had only a limited interest in the property, which she in fact continued to enjoy, she was unable to declare a trust over it on the terms of the deed. This had the consequence that she had not made a gift at all and instead remained beneficially entitled to the property under s49 IHTA. For this reason the reservation of benefit rules were of no application.
- 4) Accordingly the appeal was dismissed. The deceased had an interest in possession in the property until her death, with the consequence that she was treated as beneficially entitled to the Property when she died and it formed part of her estate.
Continue reading "Sussman v HMRC [2016] UKFTT 523 (TC)"