In 2014, Today’s Wills and Probate published an article setting out guidance for solicitors when clients choose to leave a particular gift to their solicitor or someone affiliated to either the solicitor personally or the business generally.
The recent case of Malcolm Scott v HMRC (2015) has provided new insight into the area gifting in wills.
What did the case involve?
The dispute regarded Inheritance Tax (IHT) on two sets of paintings given as lifetime gifts. There were various further legal complications and details, but largely the disagreement centred upon whether the gifts would be subjected to IHT.
The first set of paintings were gifted by parents to their sons, Malcolm and Alastair Scott. Since the two sons remained living at home when the first set were apportioned, and their later homes were not deemed secure enough to hold such chattels, the first group of paintings were kept in the family home on their behalf.
The key dispute arose on the second group of paintings when Alastair and Malcolm disagreed on the outcome of how the gifts were appropriated following the deaths of their aunt and parents. Since their father had originally taken the paintings — gifted by their aunt – and stored them at the family home, it was uncertain as to whether he had then acquired ownership at that point or had simply been keeping them on behalf of his sons.
Alastair believed his father had taken ownership and therefore the paintings had ultimately fallen into their mother’s estate for IHT purposes. He had reasoned that no formal conversation had taken place on the division of the joint gifts. However, Malcolm disputed this, claiming his brother was mistaken. He asserted that their father had simply been keeping the paintings on the sons’ behalf and therefore the gifts would not fall under their mother’s estate.
The outcome of this would have affected the amount of IHT the gifts qualified for since both brothers were co-executors to their mother’s estate. Subsequently, both Malcolm and Alastair submitted separate inheritance tax accounts to HMRC. Unsurprisingly, HMRC sided with Alastair’s view on this occasion, resulting in a taxation on account of all paintings upon Alastair’s death.
After a lengthy appeal process, the courts allowed Malcolm’s appeal. It was decided on the balance of probabilities that the necessary intention and delivery were present for the gifting of the first set of paintings. Rejecting HMRC’s argument, the court decided that the second set of paintings were gifted to the sons by their late aunt, and would not fall under the parent’s estate, despite the father physically taking the paintings.
So what does this case demonstrate?
This case has highlighted the ambiguous nature of gifting assets, and how disputes will sometimes need to be resolved in court. It is always recommended that full details should be recorded by any solicitor who is aware of a client gifting assets during their lifetime.
When it comes to IHT, neither the solicitor nor the client can be too meticulous.
What are your views on this case? Do you view lifetime gifts as a particularly troublesome area regarding IHT?
