Analysis
The Woodland Trust brought this appeal on the basis that the Chancery Court judge at first instance had not determined the construction of a will correctly. The matter involved the estate of Valerie Smith who died in 2011 leaving a will executed on 2 February 2001 which left her residuary estate (totalling £680,805), to her family (the respondents) and the Woodland Trust. The relevant clauses for construction were clauses 5 and 6. Clause 5 stated as follows:
‘MY TRUSTEES shall set aside out of my residuary estate assets or cash of an aggregate value equal to such sum as is at the date of my death the amount of my unused nil rate band for Inheritance Tax and… hold the same for such of the following as shall survive me and in the case of grandchildren attain 23 and if more than one in equal shares absolutely.’
The respondents were then listed.
Clause 6 directed that the remainder of Mrs Smith’s estate should be held for The Woodland Trust.
Mrs Smith died on 1 September 2011 by which time s8A of the Inheritance Tax Act 1984 (IHTA 1984) had come into force allowing executors to claim a ‘transferrable’ nil-rate band from a pre-deceasing spouse. The respondents argued that the amount of ‘my unused nil rate band for inheritance tax’ was a figure of £650,000, ie Mrs Smith’s nil-rate band and her deceased husband’s unused nil-rate band. This construction resulted in only £30,805 passing to The Woodland Trust under clause 6. The judge at first instance agreed with this construction.
The Woodland Trust appealed contesting the first instance judge’s interpretation. It was argued that the choice of the words used in the will, being ‘at the date of my death’ and ‘my nil-rate band’ pointed away from the respondents’ construction of the will. Furthermore, the use of ‘unused’ in terms of the nil-rate band was an indication that Mrs Smith was referring only to her own nil-rate band and Mrs Smith could not have envisaged an addition to this by way of a claim made by her executors after her death.
The Woodland Trust also contended that s8A IHTA 1984 related only to the inheritance tax payable on the estate but it could not impact on the construction of clause 5.
The Court of Appeal unanimously dismissed the appeal and held for the respondents.
Held:
- 1) It is necessary to look to ‘the purposes and values which are expressed or implicit in [the] wording’ in order to find Mrs Smith’s intention here and thus to determine how the clause should be construed. In doing this, the natural conclusion is that Mrs Smith structured her will to give as much as possible to her family without the payment of inheritance tax. Mrs Smith clearly did not have a specific amount in her mind which she intended to pass under her will and she appreciated that the nil-rate band was changeable.
- 2) The effect of s8A IHTA 1984 was to increase the testatrix’s nil-rate band retrospectively. In technical terms this section does not transfer the nil-rate band of a predeceasing spouse but it increases the allowance of the surviving spouse. On this basis Mrs Smith’s use of ‘my unused nil-rate band’ did not contradict the inclusion of this increased allowance.
Continue reading "The Woodland Trust v Loring & ors [2014] EWCA Civ 1314"