Analysis
Raymond Ayres deceased died intestate on 4 June 2008. The claimant is the deceased’s sister and the first defendant his wife.
As the deceased left no issue, his estate devolved according to the intestacy rules. Accordingly, his chattels and a statutory legacy of £200,000 went to the first defendant absolutely and the remainder of his estate was divided equally between the claimant and first defendant.
In these circumstances, the first defendant intimated a claim for reasonable financial provision from the deceased’s estate. Given the potential for post-death inheritance tax planning, the parties reached a compromise and a deed of variation was executed on 22 January 2010, providing for (i) a 30/70 per cent division of the residuary estate between the claimant and first defendant, (ii) payment of the applicable nil-rate band sum to the claimant immediately and (iii) the remainder on an interest in possession trust for the first defendant ‘for the period of twenty four months from the date of the death of the [deceased]’, and thereafter for the parties absolutely in their respective shares.
The second defendant refused to apply spouse exemption to the sum held on interest in possession trust for the first defendant pursuant to s142(4) of the Inheritance Tax Act 1984. This claim, made in response to the second defendant’s refusal, contended that (i) s142(4), properly interpreted, does not require the beneficial interest to extend beyond midnight on the second anniversary of the deceased’s death, alternatively (ii) the deed of variation, properly interpreted, should be read as if the words ‘the day after death’ had been included, or, in the further alternative, (iii) the deed should be rectified.
The second defendant contended that claims (i) and (ii) fell within the tax appeal tribunals’ exclusive jurisdiction, but that the High Court was properly seised of claim (iii). On this basis, the claimant discontinued (i) and (ii) but proceeded with the claim for rectification. Accordingly, the second defendant intimated that it would await the result of that claim, without taking an active role in it, before issuing a notice of determination of the estate’s liability to tax. The claimant contended at the hearing that the court should not determine the matters of construction without inviting submissions from the second defendant and on the substantive points of construction.
Held
Adjourning the claim with permission for the claimant and/or second defendant to restore on short notice for further directions or argument. The court could not proceed on the stated assumption that the deed of variation did not create a period beyond the limits imposed by s142(4). There was authority for a court to indicate that, if it had taken a different view on construction, it would have ordered rectification, but none that rectification could be ordered when the court has not determined that the words it is sought to rectify have failed to express the parties’ intentions.
3 February 2014