Summer Newsletter - THE TAXMAN STRIKES – AGAIN!
The Special Commissioners recently dealt a financial blow to the Phizackerley family in circumstances which have led to much discussion amongst practitioners.
Like many of our clients, Dr Phizackerly and his wife bought a property in joint names. Later they severed the joint tenancy and made wills creating a discretionary trust of the nil rate band. Mrs Phizackerly died before her husband. He gave her estate an IOU and her half share in their home vested in him.
When Dr Phizackerly died, the Revenue argued section 103 of the Finance Act 1986 applied: the wife had made no financial contribution to the purchase, the transfer of half share to her was a gift which was followed by the IOU, resulting in the half share of the house being given back to him. The Revenue denied the deduction of the amount of the IOU from his estate for inheritance tax. Thus the tax planning scheme failed.
We have always been aware that where the surviving spouse previously made a lifetime gift to the deceased spouse, any debt scheme could be open to attack under section 103. For some of our clients the charge scheme may be the preferred option: the personal representatives charge the deceased spouse’s equitable interest in the property to the value of the nil rate band and then transfer their equitable interest to the surviving spouse, encumbered with the charge. It is not a personal debt owed by the surviving spouse and is not open to the Phizackerly type attack.
However, the case does indicate that the Revenue are ready (no surprise there then?) to look closely at inheritance tax saving schemes. All background information should be kept and if you want to take advantage of the inheritance tax saving schemes that currently work, seek our early advice.
Contact Kathryn Tarry for specialist tax planning advice on your matters on 0118 9842266.