A special commissioner decided that a gift of two houses by a terminally ill daughter to her elderly mother so that they could be sold to provide nursing care for the mother when necessary, was a partially exempt transfer for purposes of calculating the inheritance tax (IHT) liability on the daughter's death since it was reasonable to assume that such care would be needed for a number of years calculated using the approach adopted in personal injury cases.

Facts

An unmarried daughter lived with her widowed mother, who was 85 years old, blind and in poor health. The daughter, who owned two houses, was told that she was suffering from terminal cancer. In early 2003 the daughter gave the houses to the mother. The daughter died in 2005 and her mother died in 2007. The Revenue issued a notice of determination, charging IHT on the daughter's gift of the houses. The combined value of the houses was agreed to be £169,000. The daughter's executor appealed, contending that she had gifted the houses so that they could be sold in order to pay for her mother's nursing care so that they were exempt transfers within IHTA 1984, s. 11(3).

Issue

Whether the transfers were chargeable transfers by virtue of IHTA 1984, s. 3A(4) or represented reasonable provision for the mother's care or maintenance and fell within s. 11(3).

Decision

The special commissioner (Colin Bishopp) (allowing the appeal in part) said that s. 11 focused on ‘reasonable provision’, which suggested an objective standard. Of course, the magnitude of what was reasonable might be considered in the light not only of the needs addressed but also of the resources of donor and donee, and the use of the word ‘reasonable’ implied a margin of discretion, but subject to those limitations the donor's view of what was reasonable was not the standard by which the gift was to be judged. There could be no doubt, however one looked at the matter, that it was reasonable to conclude, when the gifts were made, that the mother would require paid care in the near future.

The tribunal rejected the suggestion, based on what in fact happened, that there was no more than a contingent need for such care, and that, regardless of the gifts, care would have been provided by family members. At the time the gifts were made, that was not the way in which the deceased or her siblings were likely to have perceived the matter. Their mother was entirely dependent on the deceased for day-to-day support and they would have reached the conclusion that, in practical terms, there was little realistic alternative to paid care. Accordingly, the deceased's decision to make the gifts for the purpose of paying for her mother's future care was based on reasonable grounds.

The only remaining question was whether the amount given was more than reasonably necessary, with the consequence that s. 11(5) required an apportionment to be made. There was some merit in the argument that account should be taken of the fact that, even when the gifts were made, there was no immediate need for paid care; that the mother had some (unspecified) resources of her own; and that a capital sum, earning interest, was given while the expenditure would be incurred over a period of some years. Some allowance should also be made for the possibility that (had she accepted paid care at all) the mother might have needed care in a care home, rather than her own home, at increased cost.

It seemed that the approach adopted in personal injury cases was appropriate, in particular taking a multiplier and a multiplicand to arrive at a basic amount, which should then be adjusted. On the limited information available, the multiplier should be 5.5, upon the footing that the deceased would have been capable of providing care for a little longer, even if the first prediction of her life expectancy had been correct, and that the multiplicand should be £21,000, the quoted cost of care in the mother's own home in 2003. Those figures led to a basic sum of £115,500. An adjustment would be made by adding an amount to cover the contingency of the mother's admission to a home, which would have led to significantly increased annual cost. Guessing at both the likelihood of the necessity and the additional cost which would result, the basic sum should be augmented by £25,000.

Section 11(5) allowed for apportionment and the appeal would be allowed in part by determining that, of the value of the properties transferred by the deceased to the mother, £140,500 represented reasonable provision for her care, and the gifts fell to that extent within IHTA 1984, s. 11, while the remainder had to be regarded, in the light of the deceased's death within seven years, as a chargeable transfer falling within s. 3A.

(2008) Sp C 694.
Decision released 18 June 2008.