A special commissioner confirmed a determination of the inheritance tax chargeable on the death of the taxpayer where the Inland Revenue Account failed to include a deed of partition assigning two-thirds of the trust fund under her late husband's estate to reversioners, her life interest in the remainder being enlarged to an absolute interest.

Facts

This was an appeal against a determination that the inheritance tax chargeable on the death of the taxpayer was £156,146,68, of which £76,235.17 remained unpaid, together with interest of £6,286.28. The determination arose because the Inland Revenue Account submitted by the executors failed to take account of a deed of partition under which the taxpayer assigned two-thirds of the trust fund under her late husband's estate to the reversioners and her life interest in the remaining of one-third was enlarged to an absolute interest.

The partition resulted in a transfer of value under IHTA 1984, s. 52(1) which absorbed most of the nil slice of the deceased. Her free estate was increased by the inclusion of the assets to which she became absolutely entitled, which included the property in which she was living, subject to a balancing payment. It was agreed at the hearing that the tax chargeable on her death was £145,258.82 and that the tax still due was £65,347.32.

It was argued for the taxpayer that full disclosure had been made to the Revenue and that, the estate having been distributed relying on figures settled by the Revenue, the Revenue were estopped from claiming the additional tax. Secondly, there was double taxation because her house formed part of her free estate but was also part of the partitioned trust fund. Thirdly, it was inequitable, unfair and unreasonable to levy the tax. At the hearing it was further contended that the deed of partition was subject to a condition precedent which was not satisfied so that there was no transfer of value under s. 52(1). It was also contended that the Revenue were not entitled to interest.

Issue

Whether there had been a transfer of value under IHTA 1984, s. 52.

Decision

The special commissioner (Theodore Wallace) (dismissing the appeal) said that there was a charge under s. 52(1) on the partition and the value transferred should have been included in the Inland Revenue Account. The charge to inheritance tax on death was express. The Inheritance Tax Act did not merely give a power to charge tax: it provided that tax should be charged. There was no provision for estoppel which would be foreign to the UK tax system. Even if an estoppel could in some way be raised there was nothing in the Act to bring it within the jurisdiction of the special commissioners.

In any event the taxpayers did not in fact make full disclosure in the Inland Revenue Account since the s. 52 transfer of value was not returned, the box for cumulative total of lifetime transfers being left blank. It was apparent that, although there were delays by the Capital Taxes Office, the delays on the other side were greater. In any event any delay by the Capital Taxes Office had no relevance to the legal liability of the executors to pay the tax due under the Act together with interest under s. 233. The fact that the estate had been distributed did not affect the liability of the executors. No clearance was sought under s. 239; the distribution was apparently before clearance would normally have been given; more important, it was also clear that clearance would not have been given until the position arising out of the partition had been resolved.

The suggestion that there was an element of double taxation in respect of the house was a misapprehension, even if it was relevant. Both before and after the partition there was a liability in respect of the house on the taxpayer's death. As a result of the partition there was a lifetime transfer in respect of the shares released to the reversioners and the balancing charge, the balancing charge was deducted from her free estate on death and the shares did not attract tax on her death. The total tax did not differ substantially from the position if there had been no partition. The tax borne by the free estate was greater, since part would have been borne by the trust fund without the partition, however the free estate was increased by the one-third of the fund released to the taxpayer.

(2007) Sp C 600.
Decision released 15 March 2007.