Melinda Giles (in her capacity as administratrix of the estate of Hilda Elsie Bolton and as executrix of Ellen Mary Bolton) v 1. The Royal National Institute for the Blind and Others
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Barling |
| Judgment Date | 02 May 2014 |
| Neutral Citation | [2014] EWHC 1373 (Ch) |
| Docket Number | Case No: HC13B04831 |
| Court | Chancery Division |
| Date | 02 May 2014 |
[2014] EWHC 1373 (Ch)
The Honourable Mr Justice Barling
Case No: HC13B04831
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr David Yates (instructed by Kennedys Law LLP) for the Claimant
The Defendants did not appear and were not represented
Hearing dates: 09.04.2014
Introduction
This is a claim brought under Part 8 of the CPR for rectification of a deed of variation dated 24 November 2007 ("the Deed of Variation") which purported to alter the provisions of the will of Hilda Elsie Bolton with a view to reducing the incidence of inheritance tax, pursuant to section 142 of the Inheritance Tax Act 1984 ("the 1984 Act").
The claim for rectification is not opposed by any of the Defendants ("the Four Charities") or by Her Majesty's Revenue and Customs ("HMRC"). A claim for refund of inheritance tax has been made and will trigger a repayment insofar as the application for rectification is successful. I have been shown correspondence from HMRC indicating that they did not wish to be joined as a party and do not oppose the application.
Neither the Four Charities nor HMRC were represented at the hearing. The Claimant was represented by Mr David Yates, to whom I am grateful for his helpful analysis of the relevant principles and case-law. In addition to his skeleton argument, he also supplied a short supplemental note after the hearing.
Background
The Claimant, Melinda Giles, brings the claim in her capacity as the administratrix of the estate of Hilda Elsie Bolton and as executrix of the estate of Hilda's sister, Ellen Mary Bolton. The background is set out in the Claimant's witness statement dated 31 October 2013 ("the Witness Statement").
Hilda was born on 21 October 1908 and died on 6 February 2006. Ellen was born on 5 November 1914 and died on 11 September 2007. There was a third sister, Anne, who died on 11 October 2006. However, the present matter arises out of the interaction of the wills of Hilda and Ellen.
On 4 April 2005 Hilda made a will ("Hilda's Will"). Ellen was the beneficiary of Hilda's Will in two respects:
(1) As beneficiary of a specific devise of a property, 43 Crosby Road, Westcliff on Sea, Essex ("the Property"), under clause 2(a) of Hilda's Will
(2) As a residuary beneficiary under clause 5.
Clause 7 of Hilda's Will provided that "the Inheritance Tax payable on my death in respect thereof shall be payable out of my Residuary Estate in exoneration of the specific legacies given by this my Will."
As I have said, Hilda died on 6 February 2006 whilst Ellen lived until 11 September 2007. Consequently, Ellen benefited under Hilda's Will, both by clause 2(a) in respect of the Property and as the residuary legatee. The inheritance tax due on Hilda's estate was calculated, on an initial basis as at March 2007, in the sum of £254,595, taking account of the then nil rate band of £275,000. This would have left very little by way of residue prior to other expenses of the estate.
Ellen, too, had made a will dated 4 April 2005, the structure of which was very similar to that of Hilda ("Ellen's Will"). Leaving aside the details of specific legacies, and of gifts which lapsed as a result of both Hilda and Anne predeceasing her (none of which is material for present purposes), by clause 6 of her will Ellen left the residue of her estate to the Four Charities equally.
Although gifts to charities are and were exempt from charge to inheritance tax by virtue of section 23 of the 1984 Act, the combined effect of the two wills was that the Property and Hilda's residue passed first to Ellen on Hilda's death, and only on Ellen's death did these pass to the Four Charities. Thus, the gifts which ultimately benefited the Four Charities attracted inheritance tax, albeit indirectly.
In the Witness Statement the Claimant, who is a solicitor, says that in 2007 she was aware of the possibility of taking advantage of section 142 1 of 1984 Act by effecting a deed of variation within two years of the date of death in order to redirect gifts passing under a will. Under section 142 such a variation would take effect for inheritance tax purposes as at the date of death. In this regard the Claimant was apparently aware that if such a deed of variation were used to redirect all of Ellen's entitlement under Hilda's Will to the Four Charities, there would be no inheritance tax at all to pay on Hilda's estate, since the total of chargeable transfers arising from Hilda's death would be less than Hilda's then available nil rate band of £275,000, and the redirected gifts of the Property and the residue would enjoy relief under section 23 of the 1984 Act. In other words, the sums otherwise due by way of inheritance tax would accrue to the Four Charities under Hilda's Will (as deemed to be amended by the deed of variation).
Accordingly, following Ellen's death on 11 September 2007 the Claimant, in the name of the firm of solicitors in which she is a partner, wrote to each of the Four Charities proposing a deed of variation. Exhibited to the Witness Statement is a copy of the letter dated 5 November 2007 which was sent to the RSPCA (the letters to the others being in identical terms). That letter contained the following:
"However, a bigger picture occurs to us. If as Personal Representative of the late Ellen Mary Bolton our Melinda Giles were to enter into a Deed of Variation in respect of the late Ellen Mary Bolton's entitlement to the estate of the late Hilda Bolton, this could save a considerable amount of Inheritance Tax. We are therefore drafting a Deed of Variation to the effect that Ellen Mary Bolton give up her entitlement to the estate of her late sister in favour of the same charitable beneficiaries who are entitled to the estate of herself, i.e. Ellen Bolton. This should make the first estate, i.e. the estate of Hilda Bolton, totally exempt for Inheritance Tax…"
There are two significant features of that passage: first, the proposed deed of variation is intended to have the effect of Ellen "[giving] up her entitlement to the estate of [Hilda]"; second, it is anticipated that the deed of variation will render Hilda's estate " totally exempt" from liability to inheritance tax. (My emphasis.)
Of the Four Charities, three replied to the Claimant indicating their broad agreement to the proposal. There was no response from RNIB.
On 24 November 2007 the Deed of Variation was executed by the Claimant. This document had been drafted by the Claimant herself.
On 5 December 2007 the Claimant, as administratrix of Hilda's estate, signed four Memoranda of Appropriation ("the Memoranda") purporting to appropriate the Property to the Four Charities in part satisfaction of what was described in the Memoranda as their respective quarter shares in the residue of Hilda's estate. The Memoranda expressly refer to Hilda's Will as "varied by the Deed of Variation".
The Claimant's firm wrote to HMRC on 11 December 2007 enclosing the Deed of Variation. The letter states:
" Re: Hilda Elsie Bolton, deceased 43 Crosby Road, Westcliff on Sea
Further to this matter we attach Deed of Variation in duplicate for noting and return and it will be noted that this will have an effect on the Inheritance Tax being charged for this property and we therefore look forward to receiving amended calculations and refund."
Two features of this letter should be noted: first, the writer is clearly under the impression that the Deed of Variation has an effect on the inheritance tax chargeable in respect of the Property; second, the writer believes that the effect in question will result in a refund of inheritance tax by HMRC.
The Property was sold soon afterwards, in December 2007. The Claimant states in the Witness Statement that she believed she was selling the property as a bare trustee for the Four Charities, having exercised a power of appropriation.
The Deed of Variation
Contrary to the apparent intention set out in the letter to the Four Charities, the Deed of Variation did not redirect to them Ellen's entitlement to Hilda's estate. On its wording the Deed of Variation redirected to the Four Charities only the gift of the residue of Hilda's estate. Therefore in other respects the terms of Hilda's Will, and in particular the specific devise of the Property to Ellen, were unchanged for the purposes of section 142. Contrary to what was stated in the letter to HMRC, the Deed of Variation had no effect at all on the inheritance tax chargeable on the Property; it did not purport to affect the Property in any way. Since the refund of tax anticipated by the Claimant in her letter to HMRC was wholly linked to the redirection of the Property, the Deed of Variation did not result in any entitlement to a refund. It achieved no saving of inheritance tax at all.
In addition, the Deed of Variation contains two obvious errors of a clerical nature. First, paragraph 3 of the recitals refers to "clause 4" of Hilda's Will when it should refer to "clause 5". Second, there is a reference, in substantive clause 4, to "the Inheritance Tax Act 1979". No such Act exists. The reference should be to the 1984 Act. The Court is also asked to rectify these clerical errors.
The main claim for rectification
The Claimant submits that the wording of the Deed of Variation did not properly record her intention, or indeed the intention and/or understanding of the Four Charities to whom the Claimant circulated the draft...
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