My firm did not deal with the estate of the first spouse and I am waiting for clarification as to how the estate was returned on the first death, but believe they may have returned the following as a direct gift to children rather than an IPDI which I would have thought it creates.
Firstly, I would be grateful for opinions as to whether it is an IPDI or not?
Secondly, if it is an IPDI, and the first estate was not returned as such, would you deal with it as if it was an IPDI and return it accordingly, perhaps explaining to the Revenue the situation, or would you follow how the first advisers dealt with the first estate?
The family seem to have treated it as a direct gift to children, and when the original property was sold a few years after the first death, the proceeds were split between spouse and the children. If I treat this as an IPDI, and the resulting PET by the Life Tenant, this is within 7 years of the Life Tenant’s death and so brought into account.
Any responses would be appreciated. This is the clause:
I give to my children A and B my beneficial interest in my principal private dwelling at the time of my death to hold for themselves in equal shares UPON TRUST for sale but with the power to postpone the sale in accordance with the following directions:
(a) my children shall not seek to realise my interest in the said property for so long as my wife is living in the property and using it as her principal place of residence
(b) at the request of my wife my children shall concur with the sale of the house and jointly with her purchase another one with her to which the provisions of this clause shall apply
What is the story of the wife’s part in all this? If she consented to the direct transfer to A and B (what was the date of that?) she may well have disclaimed or released her IPDI at that date, if not earlier, and if still residing thereafter have had a mere licence since then. Crucially she has moved out so the IPDI, which it was in my view, has already terminated at the very latest when she vacated the premises.
The splitting of the sale proceeds makes this sound like a Saunders v Vautier occasion even if the lay parties had no technical understanding and that could have been achieved without any trustee involvement. Who were the trustees? Did they in fact receive advice or crack on without “benefit of clergy”? Many rush in where Jack fears to tread!
Alternatively it could have been an advancement under s32 TA 1925, with the wife necessarily consenting, or an exercise of a power of appointment, if one existed, not even needing to be done by deed. Both had to be at least in writing and there may have been a document. Its content and background will be critical if its effect can be properly analysed to support any of the above arguments.
But while any of these alternatives could have been an occasion whereby the LT received part of the sale proceeds they are invariably gratuitous, pointing to S v V. If the 3 parties merely agreed to split the sale proceeds once received there would have been no need for writing. An S v V agreement dealing with land must either be in writing or implemented by a separate document. A disclaimer need not be in writing and can be by conduct but some cogent evidence must corroborate it.The sale documentation should be indicative: who were the contractual vendors and the transferors of the title?
I am inclined to suggest an original IPDI, then its termination, being a PET with its TOV reduced by W’s share of proceeds. Date of termination is date of vacating but arguably earlier if there was an earlier disclaimer or legally valid transfer to the children. I assume no CGT owing to full PPRR. Just as well since no hold-over relief.
The fact that she would have been legally entitled to reside in her own right might assist an argument that the facts support, with other evidence, that she terminated her IPDI sooner than vacating.
I am waiting to see how the Accountants who dealt with the first estate returned it (I have asked for the IHT form), but from other notes I have seen from the time they dealt with it, I suspect they did not treat it as an IPDI for the spouse, but as a direct gift to the children.
In my view, it was an IPDI.
The property owned by the first deceased and the spouse was sold a few years after the first death, and that was when the surviving spouse took half the proceeds which she was entitled to in her own right, and the children took the half left by the father. The spouse bought another property in her sole name, and the children loaned her £100,000 each so that she could do so and placed a charge on the property taking the surplus of father’s half in cash. Whether they understood that they could have purchased the new property under the terms of the IPDI I don’t know but, at that stage, based on the facts, it seems they brought the IPDI to an end and the PET arises.
It may be that, in the minds of the family, the children always owned 50% and the surviving spouse owned 50% because they didn’t understand the IPDI but, unless there is some evidence that can point to them ending the IPDI immediately after father’s death or at least considerably earlier than the sale and the division of proceeds took place, I think I will have to treat it as a PET as at the date of the sale and account for it accordingly.
It is always good to hear views of members of the forum as this can throw up things you haven’t thought of, and act as a sounding board to check your own view on an issue.
The Dog that has not barked in the night is how the IHT liability was disclosed and paid on the first death. Regarding the gift as made direct to the children seems initially counter-productive as it would then be chargeable rather than exempt. The estate may still have been fully non-chargeable, perhaps owing to all available four NRBs including TNRBs. The ascertainment of a right of residence IPDI is not always self -evident but I would say is clear in this case. The Nelson touch (as well as incompetence) on the part of the past advisers, to dodge a future PET and doubtless an appreciating asset albeit with RNRB and TRNRB, is fraught with the risk of it reaching the desk of the vultures at The Cube not to mention HMCTS.
