A special commissioner dismissed an appeal by the personal representative of a deceased against a notice of determination that a liability incurred by the deceased was not deductible in computing the value of his estate for inheritance tax since the amount in question was not excluded from being a transfer of value under FA 1986, s. 103 as arising from a disposition for the maintenance of a spouse.

Facts

The daughter and personal representative of the deceased (P) appealed against a notice of determination that a liability £153,222.99 incurred by the deceased was not deductible in computing the value of his estate for inheritance tax by virtue of FA 1986, s. 103. The deceased and his wife had purchased a house in joint names with funds provided by the deceased. The joint tenancy had later been severed. On the death of the wife she had left her estate by her will as to the nil rate-band on discretionary trusts for the deceased (who survived her) and her children and remoter issue, and the residue for the deceased absolutely. Her half-share of their house valued at £150,000 was assented to the deceased on his promising to pay £150,000 (subject to indexation) to the trustees of the nil rate band discretionary trust. The Revenue said that that debt was non-deductible for inheritance tax on the deceased's death because the conditions of s. 103 were satisfied since the wife's half-share in the house was property derived from the deceased, being the subject matter of a disposition made by the deceased, and so the liability that he undertook to the trustees was subject to abatement to the full extent of the debt.

P contended that s. 103(4) provided an escape in that the disposition for the purposes of s. 103(3) was the gift of the cash with which to buy the half-share in the house or the half-share in the house itself by the deceased to his wife. P argued that such disposition was not a transfer of value by virtue of IHTA 1984, s. 11, as a disposition for the maintenance of family. It was submitted that providing a half-share in the house qualified as being a disposition for the maintenance of the wife.

The Revenue contended that, while there were circumstances in which providing a half-share in a house could be maintenance, in the present circumstances the transfer was not for maintenance. The deceased could have provided his wife with somewhere to live without giving her a half-share in the house.

Issue

Whether the disposition as a gift of cash or the half-share in the house was ‘for the maintenance of the wife for the purpose of IHTA 1984, s. 11.

Decision

A special commissioner (Dr John Avery Jones) (dismissing the appeal) said that s. 11 was an odd section added to the Finance Act 1975 at a late stage, presumably to deal with fears that maintenance payments might not be properly excluded by s. 10 (dispositions not intended to confer gratuitous benefit). What was proper maintenance depended upon all the facts and circumstances of the particular case being considered at the time. It was clear on the one hand that the meaning of maintenance should not be too limited; it did not mean just enough to enable a person to get by. On the other hand, it did not mean anything which might be regarded as reasonably desirable for his general benefit or welfare.

There were therefore circumstances in which the transfer of an asset to a spouse could be maintenance. The ordinary meaning of maintenance had a flavour of meeting recurring expenses, in which case inheritance tax was unlikely to be relevant. However, it was wide enough to cover the transfer of a house or part interest in a house but only if it relieved the recipient from income expenditure, for example on rent. Since the deceased and his wife were both dead the only evidence of their purpose was that of P who considered that the deceased thought it appropriate that the house be owned by them jointly so that the wife would enjoy the security of joint ownership. That was probably the reason that married couples normally had for putting their house into joint names. It was not ‘for the maintenance’ of the other party; it was to give the other party security. When a husband put a house in joint names of himself and his wife during their marriage it was not within the ordinary meaning of maintenance. Accordingly, the disposition was not for maintenance in this case.

P reserved the right to contend that s. 103(2) applied to exclude s. 103 and sought a finding of fact that the gift of the money for the half-share in the house was ‘not made with reference to, or with the view to enabling or facilitating, the giving of the consideration’. The court made such a finding. The consideration was the half-share in the house. If the gift had been with reference, etc. to the giving of the consideration, the house would not have been put into their names as joint tenants. The fact that the joint tenancy was severed four years after the purchase at the time their wills were made indicated that inheritance tax planning took place in 1996 and the gift was not made with reference, etc. to the giving of the consideration for the debt.

(2007) Sp C 591.
Decision released 14 February 2007.