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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Ware v Ware [2021] EWHC 694 (Ch) (29 March 2021) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2021/694.html Cite as: [2021] EWHC 694 (Ch) |
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES (ChD)
Fetter Lane, London, EC4A 1NL |
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B e f o r e :
____________________
MR NICHOLAS JOHN WARE | Claimant |
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- and - |
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MRS CONSTANCE WILTSHIRE WARE | Defendant |
____________________
James Poole (instructed by Penningtons Manches Cooper LLP) for the Defendant
Hearing dates: 11 January 2021
____________________
VERSION
OF JUDGMENT APPROVED
Crown Copyright ©
Master Clark:
variation
dated 4 October 2005 ("the Deed of
Variation").
Ware,
is a trustee and beneficiary of the Trusts. He is unmarried and has no children.
Ware,
is the claimant's co-trustee and beneficiary of the Trusts. She is the claimant's mother, and he is her only child.
v
Ashmore [1995] STC 1151 (and the authorities discussed by the Court of Appeal) and Allnutt
v
Wilding [2007] EWCA Civ 412, [2007] WTLR 941 to be drawn to the Court's attention.
Evidence
(1) the claimant's witness statement dated 1 February 2020;
(2) the witness statement dated 10 June 2020 of
Victoria
Timothy (formerly Wood) of Penningtons Solicitors LLP, the solicitor who advised the trustees and prepared the 2013 Deeds;
(3) the defendant's witness statement dated 1 February 2020.
Factual background
Ware
("the testator"), died. His will dated 1 July 1999 left his half share in the matrimonial home, the Coach House, 4 Cooks Folly Road, Bristol S9 1PL ("the Coach House") and his residuary estate to his wife (the defendant) absolutely.
varied
these dispositions by the Deed of
Variation,
the effect of which was that the
varied
dispositions were read back to the testator's death for inheritance tax ("IHT") purposes.
Variation
created the Trusts, identified respectively as the Property Trust and the Will Trust.
"3. Trusts of the Appointed Fund
3.1 Subject to any further exercise of the power of appointment contained in clause 2.3 of the Property Trust, the Property Trustees shall pay the income of the Appointed Fund to Nicholas during his lifetime."
"It might be sensible to add beneficiaries to the potential class at this stage so that the assets would not automatically pass back to MrsWare
as this could result in double taxation. It may also be sensible for the Trustees to agree that on the claimant's death, Mrs
Ware
is given a life interest in the property [i.e. the Property] rather than it passing to other beneficiaries."
(After 22 March 2006 and the changes to IHT then made, a life interest could be appointed to the defendant following the claimant's death without the underlying property forming part of her estate for IHT purposes, and at the same time securing her continued occupation of the Coach House).
"1. …
2. Deed of Appointment for the Property Fund. Please could you let me know who you would like to add as potential beneficiaries i.e. who would you like to benefit in the event that you both died together. I will then be able to amend the terms of the Trust at present. Of course it would be important to ensure that MrsWare
is able to continue to live in the Coach House for the rest of her life.
3. Deed of Appointment for the Residuary Fund. Again, please could you let me know who you would like to benefit. It may be that the beneficiaries will be different and that your wishes in relation to each fund will be different."
"I was in Bristol last weekend and went through this with my mother.
We would like to proceed as you suggest. The additional potential beneficiaries for both trusts are to be
Janet Parkes
Angela Ryan
Christopher Gray
Andrew Gray
David Gray
You should have details for all of them as they are in my will/list of wishes.
We would only expect them to benefit following both my death and that of my mother
…
Please prepare the necessary documents for us to sign" .
"Thank you for your confirmation that you would like to amend the terms of the Trusts under MrWare's
Will Trust.
I therefore enclose the following documents:
1. Deed of Appointment in relation to the Property Trust
In this Trust we confirm that on Nicholas' death, the fund will be held on discretionary trusts so that the Trustees (MrsWare
at present or Nick's Executors in the event that Mrs
Ware
predeceases Nick ) will be able to decide who should benefit from the Trust. The beneficiaries will be Mrs
Ware,
Janet Parkes, Angela Ryan, Christopher Gray, Andrew Gray and David Gray.
If Nick has children, his children will also be part of the class of beneficiaries. In the event that the trustees do not make a decision, Nick's children and remoter issue will receive the fund in equal shares.
If Nick does not have children the capital will be distributed equally between those beneficiaries I have mentioned.
This takes effect over the 45% share of the Coach House which is owned by the Settlement.
2. Deed of Appointment in relation to the Will Trust.
The terms of this Will Trust will be exactly the same as above but the funds represent a loan of £217,000 which is currently loaned to MrsWare."
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"Subject to any further exercise of the power of appointment contained in sub-clause 2.3 of the Property Trust, the Property Trustees shall pay the income of the Appointed Fund to Nicholas during his lifetime".
varied
by the Deed of
Variation)
which is preserved by clause 4.1 of the 2013 Deed and adds nothing.
Effect of the 2013 Deeds
v
Stubbs [2017] EWHC 180 (Ch), [2017] W.T.L.R. 1399 at [13]:
"In March 2006 some important changes were made to way inheritance tax applies to interests in possession in settled property. The changes largely abolished the interests in possession regime in respect of interests in possession created on or after 22 March 2006 by the interposition of new subsections in section 49 of the IHTA and new sections added after section 49 . The effect of these changes is that, subject to limited exceptions, interests in possession created on or after 22 March 2006 do not result in the beneficiaries entitled to them being treated as the beneficial owner of the settled property. That in turn means that the termination of a post-2006 interest in possession followed by the creation of a new interest in possession would, subject to limited exceptions, result in an immediate charge to inheritance tax. However, where an individual continues to have a qualifying interest in possession created prior to 22 March 2006, he or she continues to be treated as beneficially entitled to the property."
(1) The claimant will be deemed to have made a chargeable transfer for IHT purposes under IHTA 1984 ss. 2(1), 52(1), resulting in an IHT charge of 20% of the
value
of the underlying property over and above the claimant's available nil-rate band. The
value
of the underlying property was approximately £745,600 (i.e. £526,500 for the Appointed Fund and £220,000 for the Trust Fund, so the possible IHT charge is £84,120.
(2) The Funds are now in the IHT relevant property regime meaning that they are subject to 10 yearly charges and exit charges of up to 6%. A first 10 year charge will have arisen on 21st October 2013 (see IHTA 1984 ss. 61(1), (2), 80(1)), albeit that it will have been
very
small, given that the Funds will only have been relevant property for a short time.
(3) The claimant will be treated as having made a gift with reservation of the underlying property of the Funds so that for so long as he remains interested in them (e.g. by reason of his life interest, as the object of powers
vested
in the trustees, and under the final default trusts) the underlying property is still liable to be taxed in his estate on death at the rate of 40% (with though a credit for any 20% lifetime charge) (see FA 1986 ss. 102ZA, 102(1), 102(3) and the IHT (Double Charges) Regulations 1987/1130, para 5).
(4) Even though the underlying property of the Funds are liable to be subject to IHT on the death of the claimant under the gift with reservation rules, there will be no capital gains tax free base cost uplift in the
value
of the underlying property on his death as there usually is where there is an IHT death charge.
(1) there would have been no 20% charge in 2013, on which interest will now be payable, possibly with a penalty;
(2) no IHT relevant property charges;
(3) no gift with reservation; and
(4) there will be a capital gains tax free base cost uplift in the
value
of the underlying property on the claimant's death with his pre-22nd March 2006 interests in possession intact.
Rectification
v
Wilding [2007] EWCA Civ 412, [2007] WTLR 941, at [11]:
"… rectification is about putting the record straight. In the case of avoluntary
settlement, rectification involves bringing the trust document into line with the true intentions of the settlor as held by him at the date when he executed the document. This can be done by the court when, owing to a mistake in the drafting of the document, it fails to record the settlor's true intentions. The mistake may, for example, consist of leaving out words that were intended to be put into the document, or putting in words that were not intended to be in the document; or through a misunderstanding by those involved about the meanings of the words or expressions that were used in the document. Mistakes of this kind have the effect that the document, as executed, is not a true record of the settlor's intentions."
v
Ashmore [1995] STC 1151, and were summarised by Barling J in Giles
v
Royal National Institute of Blind People [2014] STC 1631. They are restated in RBC Trustees
v
Stubbs at [38] to [42]:
"38. …Barling J noted that while equity has power to rectify a written instrument so that it accords with the true intention of its maker, as a discretionary remedy rectification is to be treated with caution. He set out the criteria, which he described as closely related, for the grant of rectification.
39. First, because the remedy must be treated with caution, the claimant's case should be established by clear evidence of the true intention to which effect has not been given in the instrument. Such proof is on the civil standard of balance of probability. But as the alleged true intention of necessity contradicts the written instrument which is ordinarily regarded as the only manifestation of the party's intent, there must be convincing proof to counteract the evidence of a different intention represented by the document itself.
40. Secondly, there must be a flaw in the written document such that it does not give effect to the parties'/donor's agreement/intention, as opposed to the parties/donor merely being mistaken as to the consequences of what they have agreed/intended. For example, it is not sufficient merely that the document fails to achieve the desired fiscal objective.
41. Thirdly, the specific intention of the parties/donor must be shown; it is not sufficient to show that the parties did not intend what was recorded; they also have to show what they did intend, with some degree of precision.
42. Fourthly, there must be an issue capable of being contested between the parties notwithstanding that all relevant parties consent to the rectification of the document."
Analysis and conclusions
True intention
(1) the evidence of both trustees as to what they intended to do; and
(2) the contemporaneous evidence consisting of the correspondence passing between the claimant and Ms Timothy in relation to and immediately before the making of the 2013 Deeds.
Flaw in the written document
v
Stubbs, they make changes to the arrangements that were not intended, and not wanted or needed.
v
Stubbs, the mistake is not just about the fiscal consequences of what the 2013 Deeds effected, but about the scope of the changes to the 2005 Deeds that would be made. This is not a case where the claimant's life interests were re-appointed because it was thought that that would have some particular tax effect which did not, because of the drafting, in fact arise. Rather, it was not intended or thought that the 2013 Deeds would affect his interests in any way, only that beneficiaries would be added, and the default trusts thereby changed.
Need for specific intention
v
Stubbs at [61]:
"I do not read the authorities as requiring the applicant in a rectification claim to go that far and such a requirement would lead to a counterintuitive result. If a mistake is made in giving effect to the trustees' intentions that mistake can create all sorts of unexpected results. It cannot be right that the trustees have to show that they turned their mind to that unexpected result and formed a specific intention not to do that. That would mean that the more bizarre the result of the mistake, the less likely it would be that the trustees could say that they thought about that possibility and deliberately decided not to bring about that result."
Issue capable of being contested between the parties
v
Ashmore at 1157d-f that the Court must be satisfied:
"that there is an issue capable of being contested, between the parties or between a covenantor or a grantor and the person he intended to benefit, it being irrelevant first that rectification of the document is sought or consented to by them all, and second that rectification is desired because it has beneficial fiscal consequences. On the other hand, the court will not order rectification of a document as between the parties or as between a grantor or covenantor and an intended beneficiary, if their rights will be unaffected and if the only effect of the order will be to secure a fiscal benefit."
v
Royal National Institute of Blind People, its purpose, content and scope are by no means clear. There is no need for an actual dispute to exist, and it is irrelevant that rectification is sought or consented to by all interested parties: Giles
v
RNIB, at [38].
v
Stubbs, Rose J accepted that a non-fiscal issue arose, namely whether the interests of the life tenants and their children and remoter issue arose under earlier or later deeds. The fiscal consequences arose not from a change in the law in relation to interests under the earliest deed,
"but only because the nature of the interests has changed so that they are now post-2006 interests rather than pre-2006 interests. That in my judgment is a sufficient contestable issue to satisfy this criterion." [65]
v Stubbs, a practical consequence of this issue was identified, namely that if the life tenants' interests arose under the later deeds rather than the earlier deeds, the provisions of the Trusts (Capital and Income Act) 2013 abolishing the statutory rules of apportionment might have some effect as the later deeds were made after the date it came into force on 1st October 2013.