No rewrite of estate return to enhance charitable relief

In David Marks (Executor of Hilda Marks) v HMRC [2024] TC09253, executors failed in their efforts to reinterpret a will trust and thus rewrite an earlier estate IHT return to improve tax relief for charitable donations. 

Hilda Marks (HM) died on 1 October 2015. Her husband, Samuel Marks (SM) died on 8 April 2014. SM's will provided for several pecuniary legacies with the residue of his estate held on trust for life for his wife (the Will Trust).

• HMRC reviewed the Inheritance Tax (IHT) account in November 2016 to a claim for Business Property Relief (BPR) and some Valuation issues. An Alternative Dispute Resolution process followed but couldn't resolve the outstanding matters.
• Following this, in June 2018, HM's executors argued an incorrect interpretation had been made of SM's estate. They suggested the Trustees for the Will Trust had exceeded their powers and made appointments out of that trust. This left insufficient funds for the trust to discharge its intended 25% Charitable Payment requirement. 
• The executors recomputed the charitable contribution from the Will Trust by reference to the assets in the Trust at the time of its creation. The revised charitable contribution exceeded 10% of both components of HM's estate and the reduced rate of IHT of 36% could apply. An IHT Form 430 was submitted to reflect this.
• HMRC disagreed and issued three Notices of Determination:

1. In relation to the Free Estate a determination for IHT on a value of £1,245,685 at 40%.
2. In relation to the Will Trust a determination based on a value at HM's death attributable to the interest in possession of £107,124. 25% of this was exempted so the taxable amount was £80,343. IHT was chargeable at 36% of that amount.
3. In relation to values transferred, including on HM's death, totalling £325,000 with IHT payable at 40%.

• The executors appealed the determinations. HMRC offered an independent review which the executors accepted. The results of this review were issued in August 2021 and the determinations by HMRC were upheld.
• The executors appealed to the First Tier Tribunal (FTT).

 There were two issues for the FTT to decide:

1. Did the charitable giving condition in Schedule 1A IHTA 1984 (Sch 1A) apply to reduce the rate of IHT payable from 40% to 36%,  the lower rate issue?
2. Did a property in Bournemouth qualify for BPR?

The first issue concerned the interpretation of SM's Will concerning the donation to charity:

• The FTT was not persuaded by the arguments presented by the executors that the provisions of the SM Will lacked clarity. The IHT forms originally submitted for HM's estate had shown a different view and were signed off by the executors including a much lower payment for charity.
• The Trustees for the Will Trust had not understood the IHT consequences of making the appointments. The FTT accepted they would have acted differently if they had properly understood, but this did not enable the steps taken to be recharacterised.

The Determinations concerning the condition in Sch 1A were upheld.

On the second issue:

• Regarding the Bournemouth property, HM had a business described as holiday lets but no documentary information was provided to HMRC about the business. 
• The Kosher nature of the flat and related services provided to maintain its Kosher integrity were not sufficient to demonstrate the holiday let was exceptional such that the business was not mainly investment in nature.

The appeal was dismissed in relation to both issues. 

Useful guides on this topic

IHT Business Property Relief
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IHT relief: 10% discount for charitable bequests on death
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The importance of professional valuations for IHT
In Mrs Dorcas Adebowale Akanwo (as Personal Representative for the estate of Miss Taiwo Akanwo Deceased)  v HMRC [2018] UKUT 0113 (LC), another Lands Chamber case, the Upper Tribunal upheld HMRC’s valuation of a terrace house of £260,000 compared to the value taken by the executor of £200,000.

Alternative Dispute Resolution (ADR) here to stay
Following a successful pilot of 400 cases HMRC decided in 2013 that Alternative Dispute Resolution (ADR) was to become a permanent feature of SME tax administration.

Allowances & rates: Inheritance Tax
What are the current rates and allowances for Inheritance Tax (IHT)?

External link

David Marks (Executor of Hilda Marks) v HMRC [2024] TC09253