Incidence for IHT

I am dealing with a case where solicitors included a specific bequest of the deceased‘s interest in a property to the other joint owners, which was given free of inheritance tax. However it has transpired that the property was held by the deceased and the other joint owners as beneficial joint tenants and not as tenants in common. Obviously the solicitors failed to check the title deeds.
Would members agree therefore that the proportion of IHT attributable to the share of the property needs to be reclaimed by the executors from the other joint owners since the bequest was invalid as the deceased was not competent to dispose of his share ?

Patrick Moroney

Bwl solicitors

The share of the property will pass to the joint owner with right of survivorship by law and not through theWill. As the joint tenant acquired the property by virtue of survivorship, and is not a beneficiary under the will of the deceased co-owner, the deceased estate is therefore liable for IHT.

Liora Torn-Hibler
Berlad Graham LLP

As joint property is not within the executors’ “title” and does not come under their control, I understand the surviving joint owners are responsible for submitting the appropriate IHT account and paying the IHT.

The joint property will be treated as an aggregated asset, in similar manner to, say, a life interest such as an IPDI.

However, if the terms of the will provide for the IHT on the (former) joint property to be paid out of the estate, the executors can reimburse the IHT paid by the survivors in joint account.

Paul Saunders

I am not sure the answer is as cut and dried as Liora has said.
If the assets do not vest in the PR’s does the burden fall on the residuary estate unless the will expressly says so?

Nigel Scase
Greene & Greene

The general rule is that the PRs and surviving joint tenant are both liable for IHT (s.200) but it is not a testamentary expense and so, if the PR’s pay (e.g. to obtain probate), they have a right of recovery from the survivor under s.211(3).

The trickier question (and, in fairness, the question asked!) is whether part of the legacy in this case can survive - namely a legacy of the tax payable on the interest in the property. I suspect it is a grey area at best but I could see a Judge finding favour with any arguments for it in the interests of fairness - whether by severing the legacy into two parts, a rule of construction or other means.

Might be one for counsel - ideally it could be resolved by a sensible agreement between the surviving joint tenant and residuary beneficiaries, implemented by a DoV.

Andrew Goodman
Osborne Clarke LLP

I agree with you Andrew. I did not mention in my posting that the property in question is situated in the Republic of Ireland. I appreciate that the burden of tax on such property unless the will says otherwise, would fall upon a beneficiary since it is not in the UK. When the deceased made his will, he was one of 3 joint tenant but one of them died shortly before him. Had the solicitors who drew up the will checked the position, they would have found that the property was held as beneficial joint tenants and presumably would have advised their client that there was no need for him to include a specific bequest of his interest, which as I said is given free of inheritance tax. One way of reaching a compromise might be to calculate the proportion of tax on the basis that the deceased held a one 3rd share rather than a one half and after applying a 15% discount for 3 owners rather than 2 owners at the date of death and offer to pay that proportion of the tax from residue. As you say the position is not clear cut as regards the “free of inheritance tax” provision and whether this still applies.

Patrick Moroney
BWL solicitors

I would hope that the residuary bens would respect the testator’s wishes, although that line of argument hasn’t always worked for me either…
Andrew Goodman
Osborne Clarke LLP

As the devise of the property fails, I would expect the tax consequences envisaged in the will instructions to fall away also.

Regrettably, it looks like a Carr-Glynn v Freestons (1999) situation, whereby the drafting solicitors may be liable to the disappointed beneficiary(s) for any loss they suffer (including any liability for IHT). Whilst the disappointed beneficiaries will be required to try and mitigate their loss, the residuary beneficiaries cannot be compelled to surrender any of their entitlement (despite any potential “windfall”).

However, as the property is in Ireland, what is the default position for joint ownership of land? In some jurisdictions it is a tenancy in common, rather than a joint tenancy. If the former applies then the property may pass under the terms of the will (unless there are more specific requirements for devising land in the Republic).

In any event, consideration will need to be given to the implications of the charge for Capital Acquisitions Tax, if any, and the extent to which this may be treated as a credit against UK IHT. As CAT is payable by the recipient of the gift, would this be payable out of the estate even if the gift is specified to be free of inheritance tax (rather than “all taxes” due on the testator’s death)?

Paul Saunders

I agree with you Paul that this is a case where the solicitors who drew the will are answerable to the beneficiary of the deceased‘s share of the property by survivorship. Had the deceased been advised to sever the joint tenancy which would’ve been possible in the Republic Of Ireland then his inheritance of a one third share would’ve been free of inheritance tax as it would have been payable out of the residuary estate. Of course I do not know how that would have affected the shares of the other two and whether the first sibling to die’s share was bequeathed to the surviving siblings. Nevertheless a severance would have reduced the inheritance tax liability in the estate I am dealing with so possibly your solicitors are also answerable to my clients. As it happens there is likely to be no CAT liability in respect the property because of the value and the relationship between the deceased and the beneficiary who in any case resides in Northern Ireland and of course there is a double taxation agreement between the Republic and the UK. Finally I have had confirmed by a solicitor in the Republic that the property was held as beneficial joint tenants I am not aware that including the bequest In the will would have the effect of causing a severance of the joint tenancy as I believe both countries have similar law in this respect.

Patrick Moroney

Bwl Solicitors