1) Michael Brooke and Others v Louise Purton and Others
| Jurisdiction | England & Wales |
| Judge | David Donaldson |
| Judgment Date | 26 March 2014 |
| Neutral Citation | [2014] EWHC 547 (Ch) |
| Docket Number | Claim No: HC12EO4418 |
| Court | Chancery Division |
| Date | 26 March 2014 |
[2014] EWHC 547 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
David Donaldson Q.C. sitting as a Deputy High Court Judge
Claim No: HC12EO4418
In the Estate of Steven James Andrew Huntley Deceased and In the Matter of the Administration of Justice Act 1982
This action concerns a will which went seriously wrong in the drafting. The court is asked to put it right by construction and/or rectification. The application is made by the executors of the will and trustees of a trust arising under the will, probate of which was granted on 29 November 2011 following the death of the testator in a motorcycle accident on 11 March 2011 at the age of 47. At the time of his death the testator was living with the First Defendant and their two young children, who are the Fifth and Sixth Defendants. The Second Defendant is an adult daughter of the deceased by his ex-wife, and the Third and Fourth Defendants are his adult children by a former partner. All were represented before me by Counsel 1, though on the point with which this judgment is concerned 2 they broadly supported the revision sought by the trustees. The net estate is estimated at around £6.9 million, of which the principal component — valued at around £5.4 million — is a 90% shareholding in Swift Group of Companies Ltd ("Swift"), an unquoted company, with the balance being real property, a collection of vintage cars and motor-cycles, and cash. The position was little different at the date of the will, about a year before the death.
In early 2009 the deceased ("Mr Huntley") sought advice from Horsey Lightly on wills and inheritance tax planning. On 19 February 2009 he met with Ms Amanda Greenough, then 2 years post-qualification and employed in the Private Client Department. He described his familial situation and detailed his various assets and their values. At that meeting and later in a letter dated 26 February 2009 she explained that his commercial assets would benefit from business property relief under which unquoted shares would attract 100% relief against IHT, while any land held for the purpose of a business would benefit from a 50% rate. She explained that the estate would also have a nil rate band (then of £312,000 but increased to £325,000 from April 2009), with any excess taxable at 40%. In response to Mr Huntley's enquiry whether IHT could be further mitigated, she advised that this could most simply be done by marrying the First Defendant and using the exemption on assets passed to a spouse. Mr Huntley was nervous about such a course, because of the financial implications if it came to a divorce, and Ms Greenough advised that he should consult another member of her firm, Lynn Wallis, for advice on these questions.
The question of a discretionary will trust arose in the following way described in Ms Greenough's letter:
"You expressed concern to ensure that your five children would be equally looked after with Louise, i.e. in an ideal world the estate should be divided six ways. We discussed arranging a Discretionary Trust of your estate whereby it would be for the trustees to decide how much and when the beneficiaries would receive their inheritance. You demonstrated concern over your children in the fact you felt they would not be capable of managing a large inheritance. Therefore, a discretionary trust would solve this problem as it would be down to the trustees to decide what age they would inherit. You can offer guidance to your trustees in the form of a Letter of Wishes which I will assist you with drafting when we decide to proceed with your will."
On 4 March 2009 Mr Huntley met with Ms Greenough and Lynn Wallis. Having heard the latter's advice, and being unwilling to risk the loss of half his capital if matters subsequently came to a divorce, Mr Huntley intimated that he did not propose to marry the First Defendant.
On 17 March 2009 Ms Greenough wrote to Mr Huntley enclosing a draft will and a will summary. The letter included the following passage:
"Nil Rate Band Discretionary Trust
"Within your will I have included a nil rate band discretionary trust. This is a most flexible type of trust and we have written it in such a way whereby any gift of your business will be paid into the settlement at the reduced valuation, i.e. after deducting the business property relief. This also ensures that any business assets that you have pass to your trustees to deal with and together with the additional powers will enable them to continue the business without having to distribute the business assets to the beneficiaries."
In relation to Clause 6, dealing with the trust, the will summary stated:
"6 Discretionary Trust
— First assets to enter the trust are those applicable to business property relief (or agricultural property relief to inheritance tax. For example, your business interest under Swift Company, any unquoted shares you may have, etc.
— The value of these business/agricultural assets is then reduced (either by 50%, or 100%, depending upon the asset), giving the "reduced value".
— If there is a shortfall between the "reduced value" and the inheritance tax ceiling (£312,000 for 08/09) this can be made up of other assets such as cash, etc.
The letter evoked no response, even after a chaser on 29 September 2009, until on 19 March 2010 Mr Huntley arrived at Horsey Lightly to execute his will. Ms Greenough went through the draft will explaining the purpose of each clause and the role of the letter of wishes in connection with the NRB discretionary trust, the proposed contents of which were discussed. She repeated that the business (i.e. the Swift shares) would attract 100% BPR and the commercial property let for business 50% 3, adding that "if there is any unused nil rate band available then this would be made up from other assets held within [the] estate". Mr Huntley indicated that he would wish the difference to be made up by cash held in his personal account. A Memorandum of Wishes was subsequently prepared on the basis of this discussion and signed on 2 June 2010.
With that background I turn to the contents of the will which Mr Huntley executed at that meeting on 19 March 2010.
(a) In Clause 4 he gifted his personal chattels to his trustees as beneficial legatees (i.e. outside the discretionary trust) — these would have included the collection of cars and motor-cycles worth in the region of £100,000+. In Clause 5 he gave to the First Defendant his interest in a residential property which he owned jointly with her, that interest being worth at the date of death a year after the will £354,593. In addition there was a villa in Portugal worth (at 2011) some £269,000, which though passing under a separate Portuguese will would also have attracted UK IHT (though I was given to understand that under double-taxation arrangements credit would have been given by HMRC for any tax paid in Portugal).
(b) Clause 6 of the will set up the discretionary trust and its proposed contents. It is this clause (or parts of it) that it is sought to revise by construction and/or rectification, and I set it out so far as material in the next paragraph.
(c) Clause 8 provided that the remainder of the estate should be paid to the First Defendant and his children (or further issue) in equal shares. This would give rise to further chargeable transfers.
The relevant parts of Clause 6 are as follows:
"6.1.1 "Reduced Value" means the value of the property after reduction in accordance with the Inheritance Tax Act 1984 Section 104 or as the case may be Section 116 [viz. the Business Property Relief of 100% or 50%]
6.1.3 "The Nil Rate Sum" means a sum equal to the amount which is the upper limit at the date of my death of the first band of value ('the nil rate band') shown in the Table referred to in the Inheritance Tax Act 1984 Section 7 (or any modification or re-enactment of it) which applies to determine rates of tax on death [£325,000 since 2009, £312,000 at the date of the will] less the total of:
6.1.3.1 such part of the value transferred in respect of my estate as is attributable to property (other than the legacy given by this clause) with respect to which the transfer of value on my death is chargeable as opposed to exempt and
6.1.3.2 the value transferred by chargeable transfers made by me within the period of 7 years immediately preceding my death (including potentially exempt transfers which become chargeable transfers)
6.2 I give to my Trustees on the trusts set out in 6.3 such items of relevant business property and agricultural property comprised in my free estate (including a divided or undivided share or a part or parcel of any such property) as my Trustees in their absolute discretion shall select and as have an aggregate Reduced Value not exceeding the Nil Rate Sum.
6.2.1 If all my relevant business property and agricultural property has an aggregate Reduced Value of less than the Nil Rate Sum then I give all my relevant business property and agricultural property to my Trustees on the trusts set out in 6.3 and in addition
6.2.2 I give to my Trustees on the trusts set out in 6.3 such sum as when added to the amount of the aggregate Reduced Value of my relevant business property and agricultural property equals the Nil Rate Sum.
6.2.3 This gift shall bear its own inheritance tax if any."
When the relevant information was collated for tax purposes following the grant of probate it transpired that the chargeable transfers (i.e. after 100% relief on the business assets 4) were in excess of £1.5 million. It is...
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