Wills v Gibbs
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE RIMER |
| Judgment Date | 31 July 2007 |
| Neutral Citation | [2007] EWHC 3361 (Ch) |
| Docket Number | Case No: NOT KNOWN |
| Court | Chancery Division |
| Date | 31 July 2007 |
[2007] EWHC 3361 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London WC2A 2LL
Mr Justice Rimer
Case No: NOT KNOWN
Digital Transcript of Wordwave International, a Merrill Communications Company PO Box 1336, Kingston-Upon-Thames, Surrey KT1 1QT Tel No: 020 8974 7300 Fax No: 020 8974 7301 Email Address: mlstape@merrillcorp.com
APPROVED JUDGMENT
Introduction
This is a claim by Richard Wills, by a claim form dated 17 May 2007, for the rectification of a deed of variation dated 14 March 2005. The deed varied the dispositions taking effect under the last will and first codicil of The Honourable Edward Wills (“the testator”), who died on 11 January 2005. The defendants are (1) Sir Roger Gibbs, (2) Alexander Mitchell and (3) Peter Wills. Sir Roger and Mr Mitchell are the testator's executors and they obtained a grant of probate of the will and codicil on 11 May 2005. Peter Wills is the father of Richard Wills. I shall, for convenience but with no disrespect, refer to father and son by their first names.
The rectification sought is simple. It is for the inclusion in the deed of variation of an additional clause declaring that the provisions of sections 142(1) of the Inheritance Tax Act 1984 and 62(6) of the Taxation of Chargeable Gains Act 1992 shall apply to the deed. The relief sought is not opposed by the defendants. The Commissioners of Her Majesty's Revenue and Customs might be regarded as having an interest, or a possible interest, in the application, but have indicated that they do not wish to be joined as parties and are content to be bound by the court's order. The fact that the application is not opposed does not of course mean that Richard is automatically entitled to the rectification claimed. The court must still first be satisfied that, on the facts and by reference to the relevant principles, it ought to make the order. Allnutt and Another v Wilding and Others [2007] WTLR 941 is a recent example of a case in which, despite the like absence of any opposition, the court was not so satisfied and refused the application.
Background facts
The testator's last will was dated 25 January 2002. By clause 1 he appointed Sir Roger and Mr Mitchell to be his executors. By clause 6.1(c) he devised certain land to Peter, who was his cousin. The details of what it comprised do not matter. By clause 7 he gave Peter his share in the farming business he carried on with him. By clause 4 of the first codicil to his will, one dated 20 November 2002, he gave further land to Peter. All three gifts were expressed to be free of inheritance tax.
Following the testator's death on 11 January 2005, Peter decided that he wished to divert to Richard those three gifts made to him by the will and codicil. The evidence also shows that Peter was well aware that there was the opportunity of doing so by way of a deed of variation, which would operate as if the diversion had taken effect under the testator's will and codicil and so avoid the disposition as being in the nature of a lifetime transfer by Peter taking effect as a potentially exempt transfer and giving rise to an inheritance tax liability in the event of his death within seven years. The evidence also shows that Peter was concerned that the scope for such a deed of variation might be swept away by a change in the law introduced by the next budget. He was accordingly anxious to put a deed in place before that budget. To that end he sought the advice of Mr Mitchell on 8 February 2005. He is a partner in Burges Salmon, solicitors. He specialises in private client work including wills, trusts and taxation matters relating to them and he is the second defendant.
An attendance note of that meeting is in evidence and it records Peter's concern about a possible change in the law. It also reflects Mr Mitchell's view that it was unlikely. Nevertheless, Mr Mitchell sensibly agreed that if Peter wanted to achieve a deed of variation before the next budget, he would arrange it. There was also some discussion about a further transaction that Peter was considering. Mr Mitchell's immediate instructions were to proceed with the preparation of the requested deed of variation.
On 25 February 2005 Mr Mitchell wrote to Peter saying that he was not going to send him a draft proposed deed of variation for digestion by him on his own because its comprehension required a joint consideration of the will, codicils and annexed plans. He proposed that he should take Peter through the draft in conjunction with those documents at a meeting fixed for 4 March 2005. In view of the relative complication of the will and codicil, that appears, if I may say so, to have been good advice. Mr Mitchell did, however, at least explain in his letter that the draft deed of variation diverted to Richard the property the subject of the three gifts I have identified. He pointed out that the budget would be on 16 March 2005 and so there was plenty of time to deal with everything before then. The meeting on 4 March duly took place and there is a note of it. It records that there was a discussion about the proposed deed of variation, the discussion being primarily as to the properties to be covered by it.
On 10 March 2005 Mr Mitchell wrote to Peter enclosing two deeds for execution by him. I need refer only to the deed of variation. Mr Mitchell said of it:
“The second document is the Deed of Variation and this document is to transfer to Richard the bulk of the property which was given to you by [the testator] under his Will. This has certain tax advantages. As the variation is being done within two years of [the testator's] death it will be treated as a gift to Richard under the Will for IHT and CGT purposes. This means there is no seven-year survivorship requirement for you, nor any reservation of benefit issues nor any gift for CGT purposes so that holdover relief, etc, are not in point. For CGT purposes Richard's base cost for your interests in these properties will be the date of [the testator's] death.”
Mr Mitchell then described more fully the property interests that Richard would be receiving under the deed, which I do not need to detail. He had already executed the deed himself and he asked Peter, once he had executed it, to pass it on to Sir Roger, the other executor, for execution by him.
The deed was duly executed and is dated 14 March 2005. It recited the will and codicil, the gifts to Peter in clauses 6.1(c), 7 and 4, the death of the testator and Peter's wish to vary the dispositions in the will. It then provided in effect that the relevant dispositions under the will and codicil in favour of Peter should be interpreted as if they had been in favour of Richard.
The problem
As regards inheritance tax, the deed of variation was intended to take effect under section 142(1) of the Inheritance Tax Act 1984. Section 142(1) to (2A) read:
“(1) Where within the period of two years after a person's death —
(a) any of the dispositions (whether effected by will, under the law relating to intestacy or otherwise) of the property comprised in his estate immediately before his death are varied, or
(b) the benefit conferred by any of those dispositions is disclaimed,
by an instrument in writing made by the persons or any of the persons who benefit or would benefit under the dispositions, this Act shall apply as if the variation had been effected by the deceased or, as the case may be, the disclaimed benefit had never been conferred.
“(2) Subsection (1) above shall not apply to a variation unless the instrument contains a statement, made by all the relevant persons, to the effect that they intend the subsection to apply to the variation.
“(2A) For the purposes of subsection (2) above the relevant persons are —
(a) the person or persons making the instrument, and
(b) where the variation results in additional tax being payable, the personal representatives.
Personal representatives may decline to make a statement under subsection (2) above only if no, or no sufficient, assets are held by them in that capacity for discharging the additional tax.”
The problem is that the deed as executed did not include the statement prescribed by section 142(2). The effect of that omission was to preclude the application of section 142(1) to the deed. The consequence is that it would not take effect as a variation of the dispositions of a testator's will and codicil. It would instead only take effect as a lifetime disposition by Peter in favour of Richard, carrying with it precisely the inheritance tax risks that it was Peter's intention to avoid.
As for capital gains tax, there are similar provisions in section 62 of the Taxation of Chargeable Gains Act 1992. Section 62(6) and (7) read:
“(6) Subject to subsections (7) and (8) below, where within the period of 2 years after a person's death any of the dispositions (whether effected by will, under the law relating to intestacy or otherwise) of the property of which he was competent to dispose are varied, or the benefit conferred by any of those dispositions is disclaimed, by an instrument in writing made by...
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