04th November 2014
Nil-Rate Band Legacy: It’s Nothing Personal
In October 2014, the Court of Appeal provided some helpful clarity on the interpretation of a Will clause containing a nil-rate band legacy of the residuary estate.
The testatrix executed a Will on 2 February 2001 which, at clause 5, provided that a sum was to be set aside from her residuary estate “equal to such sum as is at the date of my death the amount of my unused nil rate band for Inheritance Tax” and to be shared equally between a number of her blood relatives. The remainder of her residuary estate was to pass to the Woodland Trust.
After the Will was executed, the Finance Act 2008 came into force which introduced the transferable nil-rate band. This meant that when the testatrix died in September 2011 she inherited her husband’s full unused nil-rate band and her estate’s exemption to Inheritance Tax increased from £325,000 to £650,000.
A dispute arose between the family beneficiaries and the Trust as to the correct interpretation of clause 5 of the Will. The family issued a construction claim in the High Court and argued that the change in law had retrospectively increased the testatrix’s unused nil-rate band and that they were therefore entitled to receive £650,000 of the residuary estate. In opposition, the Trust claimed that the use of the word “my” in clause 5 of the Will meant that it was only the testatrix’s own unused nil-rate band which should be taken into account and not the additional sum inherited from her husband.
The High Court’s Decision
The High Court found in favour of the family and declared that they should receive £650,000 under the terms of the Will. The Trust appealed and the case came before the Court of Appeal in July 2014.
The Court of Appeal
The Court of Appeal looked at the meaning of the words in clause 5 and the context in which the Will was made. There was no helpful contemporaneous evidence as to the testatrix’s intention when the Will was made. SettingsHowever, it was well known at the time the Will was made that a change in the law was imminent and the wording of clause 5 showed that the testatrix had appreciated that her nil-rate band was likely to be different at the date of her death.
The Court then looked at the purpose behind section 8A of the Finance Act 2008 which is to increase the nil-rate band available to the estate of the surviving spouse for the purposes of Inheritance Tax. The effect of the election by the executors to benefit from the provisions of the 2008 Act is therefore that the nil-rate band available to the estate is retrospectively increased as at the date of death. The use of the word “my” was to be read accordingly. In Lord Justice Lewison’s words “there is no such thing as a personal nil-rate band: there is only a nil-rate band”.
The Trust’s appeal was dismissed unanimously by all three Judges in the Court of Appeal.
This case is an insight into the difficulties which can arise around the interpretation of Wills after a death and a useful reminder to take steps to eliminate any ambiguity which may result from a change in the law.
If you would like to discuss making any changes to your Will please contact Hauke Harrack on 01604 233233 or click here to email Hauke, or if you have any queries relating to challenging the interpretation of a Will please contact Kate Harris on 01223 461155 or click here to email Kate.
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