What do I get if I'm left the 'maximum sum free of tax' in an English will?

Royal Commonwealth Society for the Blind v Beasant and Davies

Chief Master Shuman has handed down judgment in a dispute about the wording of Mrs Audrey Arkell’s Will four years after Mrs Arkell’s death. The decision helps guide the interpretation of nil-rate band clauses in wills.

What happened?

The dispute turned on a clause in her Will which reads:

’4 I GIVE the Nil-Rate Sum to my trustees on trust for my said friend, JOHN WAYLAND BEASANT.

4.1 In this clause ‘the nil-rate sum’ means the largest sum of cash which could be given on the trusts of this clause without any inheritance tax becoming due in respect of the transfer of the value of my estate which I am deemed to make immediately before my death.’

Mrs Arkell also left Mr Beasant an apartment, valued at £240,000, shares worth £218,256, and personal items valued at £1,390 all free of tax. She left legacies totalling £45,000 to other friends/ relations. She gifted the rest of her estate equally between 21 charities.

The nil-rate band (ie the threshold above which inheritance tax becomes due) is £325,000. Mr Beasant believed Clause 4 meant he was entitled to another £325,000 again free of tax. However, the total value of the gifts to Mr Beasant and friends was already £504,646 (and the inheritance tax due on those gifts paid out of her residuary estate).

Sightsavers, on behalf of all the residuary beneficiaries, contended that the words ‘largest sum … which could be given … without any inheritance tax becoming due’ showed that he was only entitled to benefit if the gifts detailed above fell below the inheritance tax threshold (which would have been the case if Mrs Arkell had sold her apartment and/or the shares). In other words, the clause acted as an insurance policy.

Mr Beasant’s barrister argued that sub-clause 4.1 should be ignored as ‘unnecessary’. He submitted that Mrs Arkell could not have intended to give Mr Beasant nothing under Clause 4; why else include it? He also argued that there is a presumption that a testator intends to benefit friends and family in priority to residuary beneficiaries.

The outcome

Chief Master Shuman rejected those arguments. She said that if Mrs Arkell had intended to give another £325,000 free of inheritance tax to Mr Beasant it would have been easy to draft such a gift. The Clause clearly contemplated that the nil rate sum was to be calculated having regard to the whole of Mrs Arkell’s estate. One could not ignore the words limiting the gift to the amount that could be given without inheritance tax becoming due – to do so would do ‘considerable violence to the language of the Will’.

The case closely echoes the Court of Appeal’s unanimous 2010 finding in RSPCA v Sharp, which is described here.

Please click here for a link to the judgment.

Paul Hewitt and Alice Tomlin acting for Sightsavers, instructed Mark Baxter of 5 Stone Buildings.

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