Holland (Executor of Holland, dec'd) v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 11 December 2002 |
| Date | 11 December 2002 |
| Court | Special Commissioners (UK) |
special commissioners decision
Stephen Oliver QC, Dr Nuala Brice.
Nicholas Blake QC and Murray Hunt (instructed by Irwin Mitchell) for the appellant.
Christopher Tidmarsh QC (instructed by the Solicitor of Inland Revenue) for the Crown.
1. Kriemhild Elizabeth Holland ("the appellant"), as executor of Michael John Holland deceased, appeals against a notice of determination dated 11 May 2001 in the following form:
The Commissioners of Inland Revenue have determined -
In relation to the deemed disposal for the purposes of inheritance tax on the death on 17 April 2000 of Michael John Holland ("the Deceased")
That, having regard to the fact that you were not the spouse of the Deceased at the occasion of the deemed disposal, the transfer of value which then occurred was not an exempt transfer within the meaning of s 18 Inheritance Tax Act 1984.
2. Section 1 of the Inheritance Tax Act 1984 ("the 1984 Act") provides that tax shall be charged on the value transferred by a chargeable transfer. Section 2(1) provides that a chargeable transfer is a transfer of value which is made by an individual which is not an exempt transfer. The relevant part of s. 18 provides:
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18. Transfers between spouses
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(1) A transfer of value is an exempt transfer to the extent that the value transferred is attributable to property which becomes comprised in the estate of the transferor's spouse or, so far as the value transferred is not so attributable, to the extent that that estate is increased.
3. Thus the effect of s. 18 is to give exemption from inheritance tax for transfers between spouses.
4. The Human Rights Act 1998 (the 1998 Act) came into force on 2 October 2000. The relevant parts of s. 3 provide:
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(1) So far as it is possible to do so, primary legislation and subordinate legislation must be read and given effect in a way which is compatible with Convention rights.
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(2) This section -
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(a) applies to primary legislation and subordinate legislation whenever enacted;
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(b) does not affect the validity, continuing operation or enforcement of any incompatible primary legislation …
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5. Convention rights are defined in s. 1 of the 1998 Act and include the rights and freedoms in the articles of the convention set out in Sch. 1. Articles 8 and 14 and art. 1 of the First Protocol are relevant in this appeal and the relevant parts of those articles provide:
Article 8
Right to respect for private and family life
1. Everyone has the right to respect for his private and family life, his home and his correspondence.
Article 14
Prohibition of discrimination
The enjoyment of the rights and freedoms set forth in this Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status.
THE FIRST PROTOCOL
Article 1
Protection of property
Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
6. The appellant was not married to Mr Michael John Holland but had lived with him as husband and wife for 31 years before his death. She claimed that the property which passed to her on his death should be exempt from inheritance tax under s. 18 of the 1984 Act. This claim was refused by the Inland Revenue on the ground that the appellant was not the spouse of Mr Holland.
7. The appellant argued that the word spouse in s. 18 was not restricted to those who were legally married but also included those who had lived together as husband and wife. Alternatively, the appellant argued that the 1998 Act applied as the notice of determination had been given after that Act came into force. It followed that s. 3(1) of the 1998 Act required the word spouse in s. 18 of the 1984 Act to be read in a way compatible with art. 14 of the Convention so as to remove discrimination on the grounds of status so that the appellant could enjoy the rights and freedoms in art. 8 and art. 1 of the First Protocol.
8. The respondents argued that the word spouse in s. 18 meant those who were legally married. The respondents also argued that the 1998 Act did not apply as the death of Mr Holland had occurred before the 1998 Act came into force. However, if the 1998 Act did apply then the respondents accepted that the facts fell within art. 8 and 14 and art. 1 of the First Protocol to the convention and that there was different treatment between the appellant on the one hand and a married person on the other. Nevertheless, the respondents argued that married persons were not in an analogous situation to that of the appellant's situation and that the difference in treatment had an objective and reasonable justification.
9. Thus, the issues for determination in the appeal were:
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(2) whether the word spouse in s. 18 of the 1984 Act meant a person who is legally married or whether it included a person who had lived with another as husband and wife; if the former, then
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(3) whether the 1998 Act applied in a case where the death occurred before the 1998 Act came into force but the notice of determination was given after the Act came into force; if the latter:
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(4) whether a wider interpretation of the word spouse was required by s. 3(1) of the 1998 Act so as to give effect to the rights in art. 14 of the convention read with art. 8 and/or art. 1 of the First Protocol and to remove discrimination on the grounds of status and, in particular:
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(a) whether married persons were in an analogous situation to that of the appellant's situation; or
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(b) whether the difference in treatment had an objective and reasonable justification.
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10. A bundle of documents was produced. There was an agreed statement of facts. Oral evidence was given by the appellant on her own behalf. The appellant had put her evidence in the form of a witness statement which she signed on 3 May 2002. Witness statements by Denise Rebischung and Gil Nelson were also produced on behalf of the appellant and were not objected to by the respondents. Two witness statements by Mr Martyn Haigh, Assistant Director, Capital Taxes dated 3 May 2002 and 28 October 2002 respectively were produced on behalf of the respondents and were not objected to by the appellant.
11. From the evidence before us we find the following facts.
12. The appellant and Mr Holland first met in 1965. In that year Mr Holland separated from his first wife and the appellant separated from her first husband.
13. In 1967 the appellant entered into a relationship with Mr Holland and in 1968 they moved together to a house in Middlesex. In 1969 the appellant changed her name to Holland by deed poll and became known as Mrs Holland. On 18 June 1969 the appellant's first marriage was dissolved by decree nisi.
14. In 1969 Mr Holland and the appellant moved to another house also in Middlesex and in 1973 they moved to Maidenhead where they lived for the rest of Mr Holland's life and where the appellant lives to this day.
15. In the years following 1969 Mr Holland and the appellant lived in all respects as husband and wife. They had two children, a son who is now 31 years old and a daughter who is now 25. Their children, and most of their acquaintance, assumed that they were married. Mr Holland provided for his family and took care of all the finances.
16. In 1972 Mr Holland instructed solicitors to process his divorce from his first wife and he obtained a decree absolute in 1974. In 1993 the appellant started to look for her divorce papers with a view to getting married to Mr Holland. However, the appellant's solicitors could not find her decree absolute. A search was made at the Principal Registry but it could not be found. In 1997 another firm of solicitors were asked to search for the decree absolute but they could not find it either. Both Mr Holland and the appellant thought that they could not get married until they had a copy of the appellant's decree absolute.
17. Mr Holland died suddenly of a heart attack on 17 April 2000. He left a will dated 25 June 1973 under which he appointed the appellant to be his executor and left all his estate to her if she survived him. With his will Mr Holland left a statement giving the reasons why he left nothing to his then lawful wife. He outlined his association with the appellant who had looked after their joint home and attended to his health and welfare and that of their son; the statement said that he felt under a greater moral obligation to the appellant than any moral or legal liability to his lawful wife.
18. On 4 October 2000 a certificate was obtained from the Principal Registry of the Family Division that the decree absolute dissolving the appellant's first marriage had been made on 19 September 1969.
19. On 14 November 2000 the appellant, as executor of Mr Holland, submitted the Inland Revenue account. This showed a gross estate of £700,381 and a net estate of £639,742. It assessed the total amount of inheritance tax payable as £179,824.40. Of the assets in the estate the value of the deceased's residence was shown as £195,000 and there were quoted stocks and shares with a value of £437,581.
20. On 11 December 2000 probate of Mr Holland's will was granted to the appellant.
21. On 22 December 2000 the appellant's representatives wrote to the Inland Revenue seeking their approval to a claim by the appellant for spouse exemption in respect of the property passing to her from Mr Holland. The Inland Revenue replied on 16 January 2001 to say that spouse exemption only applied to transfers between persons who were lawfully...
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