Partial intestacy, gift of property, interpretation

I expect this is one for counsel, but some help in identifying and clarifying the issues would be appreciated.

Deceased spinster 94 years of age. No living relatives. Executor is her goddaughter who was also her LPA attorney.

Amatuerish will (we suspect was prepared by her IFA ) provides (precis of it)

  • her house at 71 London Rd… and contents to the goddaughter. No provision for any substitute property.
  • All cash and investments to be divided equally between three charities and goddaughter’s brother but if she is in a care home at date of death then her cash and investments to be divided 50% to goddaughter and the other 50% equally between the three charities and goddaughter’s brother.

Goddaughter sold the house at 71 London Rd for £680,000 and invested £230,000 to use for care fees and bought a house to generate an income to cover part of the care fees. Issues / questions are:-

i) Goddaughter loses entitlement to the house at 71 London Road as it was not owned by deceased. Is there any basis for assuming that there should be an implied intention to ‘roll over’ that gift into a replacement property?
(ii) Does the will deal with all of the assets of the deceased? There is no reference to real estate either on its own or as included within any residuary estate? Or is there a partial intestacy in respect of the
(iii) Is there any scope for arguing that the term ‘all my cash and investments’ can include the replacement house which was bought as an investment to generate an income?
(iv) if there is a partial intestacy, with no living relatives, is there scope for engaging with the relevant gov department (Official Solicitor?) for the purposes of some form of rectification?
Our interpretation of the worst case scenario is that the estate (£645,000) will suffer IHT of around £120k. If the house passes bona vacantia, the 50% of the cash passing to the goddaughter will bear the brunt of the IHT and the goddaughter will receive hardly anything, when this time last year she stood to inherit a house worth £650k, less IHT.
We are concerned about the proviso re her cash and investments, in particular the part where if the deceased went into a care home, the goddaughter would receive half of (the estate/cash and investments). This clearly envisaged the possibility of the house being sold and compensated the goddaughter for that, but the fact that replacement house has been bought seems to potentially create a vacuum.
What other issues / questions should we be raising at this stage. we are preparing a Larke v Nugus request for the IFA who write the will but we suspect he just wrote out what she was saying. We are not expecting there to be any useful extrinsic evidence.

As ever, grateful for any input.

Michael McCabe
Heath Square Private Client Limited.

Counsel will certainly have greater knowledge than I, but I do believe that the ‘intent’ is clearly show despite the 'amateurish way in which the Will was written.

This lady clearly wanted the godchild to have the full value of the London Road property and contents as well as an additional percentage of the residue. Therefore the capital from the sale should be treated as a roll over into the second property together with the invested balance, which should not be considered as part of the ‘residue’ of the godmothers estate.

The fact that the godchild (LPA) acted in the correctly to sell the London Road home to support the care home costs shows only good intent to act in the best way possible to ensure that her godmother received the best care and such act should not impact on what her godmothers wishes were intended to be.

Others may see differently, but in my opinion the goddaughter should not suffer total loss through inheritance tax, which should be paid from the ‘residue’ of the estate and not from the remaining house and investment from the sale of London Road, which I believe was the intention of the grandmother…

Ascertaining intention of a testator is in my option an almost impossible exercise.

Wrt home-made wills the testator may be clear in their mind what they wish to achieve but often, somewhat ironically, the actual wording of the will (and its consequences) defeats this intention. This is perhaps not surprising when such a testator is likely to be entirely ignorant of terms such as ademption, lapse, bona vacant to name but three.

My observations (which is all they are) is that the true intentions of the deceased spinster are likely to be defeated.

The gift of 71 London Road is a specific gift which will fail by ademption. Unfortunately, there appears to be no statement to the effect that should this property be sold that the beneficiary should still inherit the sale proceeds in the event of a sale or inherit property which those proceeds represent on reinvestment. I therefore can’t see the replacement property purchased being inherited by the Goddaughter or the investments (both purchased from the sale of the London Road property).

It seems that the spinster seemed to understand and appreciate that London Road might well need to be sold to pay for her care home fees (which no doubt she felt may well dissipate most of these proceeds) and thus expressed the wish that in this case her Goddaugther should effectively instead inherit 50% ff her cash and investments. For this purpose I doubt the term “investments” in this context could be construed as extending to the replacement “rental” property itself although would include the £230k of investments (purchased using some of the London Road sale proceeds).

I’m not sure how the house can pass otherwise than bona vacantia and the Goddaughter avoid bearing the bulk of the IHT on the estate.

Charities, when it comes to claiming their share of the spoils are as we are all aware not usually very charitable but in the present case would there be any mileage in the beneficiaries and the charities agreeing that the replacement property does fall within the definition of “investments” so avoiding it passing by bona vacantia?

Malcolm Finney

I would have thought that a house purchased with a view to providing investment income was itself an investment.

I’m old enough to remember Schedule A, investment income surcharge and the apportionment of close company income and my (admittedly vague) memory was that rental income was investment income.

Counsel will be able to advise.

Although I have not checked the point, I would have thought that there is no reason in principle a property acquired to produce rental income (and presumably capital growth) should not fall into the category of ‘investments’ particularly where, as seems to the be the case, the testator appears to intend this category to cover the various ways the sale proceeds of 71 London Road might be invested for the purposes of meeting care fees.
I would certainly recommend counsel be instructed.

Just wrt Gerry’s point, rental income is investment income but today the key distinction is between savings and other (ie non-savings) income. For savings income see ITA 2007 s18 (which does not include rental income; ie rental income is non-savings income).

Property income is taxed as non-savings income (ITTOIA 2005 Pt 3).

I’m unaware of any explicit definition of what constitutes an “investment” (including IA 1978) although case law seems to support, for example, stocks/shares whilst at the same time excluding money on deposit with a bank.

As indicated in my earlier post, I find it difficult to accept that the spinster had in her mind the purchase of a rental property as falling within the definition unless possibly at the time she already owned a property which she let out (which does not appear in fact top the the case).

Malcolm Finney

Thank you all for your replies which are very helpful. We will focus on trying to have the replacement property treated as an investment, but suspect that the treatment of property as an investment from a tax perspective may well be different from the treatment of property under succession law.

Michael McCabe

I have also wondered about the application of tax definitions to succession law. However, perhaps some solace may be found in s8(1)(a) Trustee Act 2000 which allows trustees to purchase land “as an investment”.

Graeme Lindop
Probate Consultant
Coles Miller Solicitors LLP

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