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Charity looses re executors interpretation of the nil rate band

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In October 2014 the Court of Appeal ruled against The Woodland Trust in their appeal challenging  the decision of the executors of the late Mrs Valerie Smith to interpret the expression 'nil-rate band' (‘NRB’) in her will to include the NRB transferred from her predeceased husband.

In 2001, Mrs Smith executed a professionally drafted will leaving her children and grandchildren sufficient assets to use up the inheritance tax NRB in force at the date of her death.

The wording of the relevant will clause stated: '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 NRB for Inheritance Tax and [...] hold the same for [the named beneficiaries]’.  Mrs Smith left the residue of her estate to The Woodland Trust.

Mrs Smith died in 2011 without having amended the will to take account of the transferable NRB provisions of section 8a of the 2008 Finance Act (although she was aware of it).  As her husband had died many years previously, her available NRB increased from £325,000 to £650,000 at the date of her death.  Her executors, Barrie and Terry Loring, who were her sons and therefore beneficiaries under the 2001 will, used the £650,000 as the amount to be distributed among the family.  This reduced the amount of the residuary estate left for The Woodland Trust from £355,805 to £30,805.

The charity challenged the executors’ interpretation of the NRB, claiming that the use of the word 'my' in the will was a clear indication that the relevant legacy was limited to £325,000.

The charity lost its challenge in the High Court in November 2013 the Judge, Mrs Justice Asplin, ruled  that the word 'my' supported the idea that Mrs Smith’s maximum NRB had been increased from the date of her death.  The charity then appealed, essentially on the grounds that Mrs Asplin was wrong and that Mrs Smith had intended to leave her family no more than £325,000.  The charity said that Mrs Smith could not have intended the amount of her legacy to her family to vary according to the exercise of discretion by her executors, who were also beneficiaries.

The Court of Appeal unanimously dismissed the appeal, although the 3 judges admitted they were torn by the charities arguments.  Their reasoning for finding in the executors favour was, in brief, that Mrs Smith had intended to give her family the maximum possible amount without incurring any inheritance tax, with the remainder going to the charity also tax-free.

If you have any questions in relation to this area please do not hesitate to contact Natasha McKeever or Katie de Swarte.

Author: Natasha McKeever