Capital Tax Review by Matthew Hutton, MA, CTA (Fellow), AIIT, TEP
Matthew Hutton MA, CTA (fellow), AIIT, TEP author of Capital Tax Review, comments on the decision in Perry v HMRC.Context
Two pretty straightforward, not uncommon, issues came up for decision in a recent SpC case. Although IHT now has the PET regime (which CTT did not), both issues continue to serve as something as a warning.Perry v HMRC: the facts
The deceased died on 5.2.89. In 1974 he had purchased the property which was then occupied by the appellant. The written probate valuation put the property at a nominal figure of £1,000, as the valuers were informed that it was occupied by the appellant, her husband and their children under a rent-free tenancy for life. On 22.1.91 Mrs Perry, the solicitor-executor and representatives of the Allied Irish Bank in Coventry met to discuss proposals for clearing the indebtedness of a number of the deceased’s accounts. The Bank’s notes of the meeting referred to Mrs Perry as the beneficiary of £1 million from the deceased’s estate which was unknown to the executors. That claim was repeated in a Bank memorandum dated 11.3.91.On 9.12.91 Mrs Perry and the solicitor-executor, as personal representatives, instructed a firm of chartered accountants to make investigations about the deceased’s estate. The chartered accountants noted from the Coventry Bank files that there was a joint bank account in the names of the deceased and Mrs Perry at the Isle of Man branch which at the date of death, had a balance of £1,034,914; this was shortly afterwards transferred to a Jersey bank account. In June 1993 Mrs Perry wrote to the Isle of Man branch requesting them to forward copy statements of the Isle of Man account to the Coventry branch, but this did not happen. In 1997 HMRC issued two notices of determination contending that:
(1) Mrs Perry was liable for IHT in respect of money held in the joint account. Mrs Perry appealed (‘the first appeal’) on the basis that no tax was payable and denied any knowledge of the joint bank account or that she had derived any benefit from money allegedly outside the UK. HMRC argued that Mrs Perry, as a holder of the bank account in joint names, was a person who was beneficially entitled to the property within the meaning of IHTA 1984 s5(2), because she had a general power over the bank account; that a surviving joint owner of a bank account was within s200(1)(c) as a person in whom the property was vested; and that by putting an account into joint names the deceased intended to make an immediate gift.
(2) Mrs Perry was liable for CTT as transferee under FA 1975 s20(2) in respect of an irrevocable licence given to her by the deceased in 1974 to occupy the property rent-free for life. Mrs Perry appealed (‘the second appeal’) arguing that there was no formal arrangement between her and the deceased and that, even if there had been a written contract, it was unenforceable for want of consideration. HMRC argued that when the rent-free licence to occupy was granted to Mrs Perry in 1974, there was a loss to the deceased’s estate, and they also pointed to an irrevocable licence for life given to Mrs Perry’s mother in respect of another property in 1978. Mrs Perry did not attend the appeal and was not represented and the Special Commissioner decided to hear and determine the proceedings in her absence.
The decision (SpC: Dr Nuala Brice)
The first appeal: in the absence of any oral evidence from Mrs Perry, there was at the date of death most probably a joint bank account in the names of Mrs Perry and the deceased and Mrs Perry was accountable for IHT payable.The Bank’s notes of the meeting in 1991 clearly indicated that Mrs Perry was the beneficiary of £1 million, unknown to the PRs, which in turn was substantiated, inter alia, by the investigating chartered accountant’s findings and by Mrs Perry herself in her letter to the Isle of Man branch in June 1993. Furthermore, the joint account constituted a gift from the deceased to Mrs Perry of the balance for the time being in the account. The deceased had a general power to dispose of all of the joint account as he thought fit and so was beneficially entitled to all of it. Accordingly the account formed part of his estate at his death for IHT purposes. Mrs Perry was accountable for the IHT payable in respect of that account under IHTA 1984 s200(1)(c).
The second appeal: in the absence of any evidence from Mrs Perry, the deceased probably granted to Mrs Perry an irrevocable licence to occupy the property rent-free for life in or about August 1974.
Dr Brice’s conclusion was supported inter alia by the written probate valuation and the irrevocable licence granted to Mrs Perry’s mother, which indicated that the deceased had granted such a licence before. As a result of that disposition the value of the deceased’s estate immediately after the disposition was less than it would have been but for the disposition, within the meaning of FA 1975 s20(2). Therefore, the disposition was a transfer of value and also a chargeable transfer upon which tax was chargeable. As the transferee of the disposition Mrs Perry was liable for the CTT. Both appeals were dismissed.
(Perry v HMRC SpC 474 5.4.05 reported at [2005] STI Issue 27)
Application
This, rather unusual, case is a reminder that the taxpayer’s interest are hardly best served at a Special Commissioner’s hearing if she doesn’t turn up or instruct anyone to represent her! The Special Commissioner in such circumstances can do none other than approach the matter on the basis of the evidence – and HMRC’s case. That said, it is unlikely that Dr Brice’s decision would have been very different in this case, on either of the issues. CTT can still rear its ugly head – and this will make us appreciate the generosity of the PET regime all the more!October 2005
Matthew Hutton MA, CTA (fellow), AIIT, TEP
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