Author: Wellers

Big Money Divorcees Pay £8.4 Million Price for Their ‘Culture of Conflict’

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Judges frequently impress on divorcing couples that it is in their own best interests to put conflict behind them and focus on achieving a sensible resolution. However, as a case in which a couple spent £8.4 million fighting over money and their children’s future showed, such blandishments all too often fall on deaf ears.

The very wealthy couple enjoyed an exceptionally lavish international lifestyle during their long marriage, which yielded four children. The marriage came to an end when the husband unilaterally divorced the wife in a foreign land where she would have been entitled to no financial provision from him.

However, given her connections to the UK – amongst other things, she was born and had spent her formative years in this country, and was currently based here – the High Court accepted jurisdiction to consider her claim for financial relief under Part III of the Matrimonial and Family Proceedings Act 1984.

Ruling on the matter, the Court found that financial resources available to them and readily accessible in the UK were worth at least £70 million. Given her contribution to the marriage as mother and carer, the Court effected a clean break by awarding her a lump sum of £27,415,000. That, the Court found, would be sufficient to meet her income, property and other needs.

The Court observed that the culture of conflict that had grown up between them had been thoroughly unhelpful in resolving the matter. At every opportunity, the Court had urged them to take a more constructive and less combative approach, but to little or no appreciable effect. They had both expressed horror at having run up £4 million in legal bills. In addition, they had spent £4.4 million on proceedings concerning the children.

Capital Gains Tax – Changes to the Annual Exemption

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What is Capital Gains Tax?

Capital Gains Tax (CGT) is payable on the disposal or sale of certain assets, this includes second homes, investment properties, art, antiques or shareholdings (held outside of an ISA or PEP).

In summary, CGT is calculated on the difference between the acquisition value of an asset and its sale or disposal value. This can also include gifted assets. The rates of Capital Gains Tax are either 18% or 28% on disposals of residential property and 10% or 20% on the disposal of other assets. Principal Private Residence Relief is available on the disposal of your main residence, making these disposals exempt from CGT. Entrepreneurs Relief is also potentially available on gains made on the sale of businesses charged to CGT.

Allowable expenses can also be deducted when calculating the tax due. One such allowance is the Annual Exemption Allowance (AEA). In April 2023 the AEA was reduced from £12,300 to £6,000 for individuals and personal representatives. The next tax year (2024/2025) will see a further reduction of the AEA from £6,000 to £3,000.

The Government had estimated that in this tax year (2023/2024) with the first reduction, circa 500,000 individuals and trusts could be affected by these changes to the AEA. By the 2024/25 tax year, the Government estimates that an additional 260,000 individuals and Trusts may be liable for CGT.

These changes have already had a significant impact on the administration of estates. The sale of houses, investments, shareholdings and other assets have all been affected. With further changes coming into place in the next tax year, estates where assets are sold at a higher value than the ‘date of death’ value and therefore subject to a CGT charge will be affected to an even greater extent.

Where CGT is not payable, where there is a gain of at least £50,000 there is still a requirement to report this to HMRC.

The reduction in the AEA together with the Government’s plan to halve the dividend allowance is expected to raise over £1.2 billion a year from April 2025. With the limit for Entrepreneurs Relief being reduced from £10 million to £1 million in 2022, CGT is set to be a big earner for the Government, widening the net of individuals, trustees, personal representatives and business owners who will need to consider its implications. Those who will now be subject to CGT need to be aware of how it may affect them and take appropriate advice.

For enquiries relating to Capital Gains Tax Changes, please contact Wellers on 020 7481 2422

or email enquiries@wellerslawgroup.com

Woman Denied Non-Resident Status Faces Seven-Figure Tax Demand

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HM Revenue and Customs (HMRC) adopts a tough approach when considering whether a person who claims non-resident tax status has spent more than the permitted number of days in the UK. It certainly brooked no compromise in the case of a woman who ended up with a seven-figure tax bill.

The day before the end of a tax year, the woman moved to Ireland. In the following tax year, her husband transferred shares to her on which she received about £8 million in dividends. HMRC rejected her claim to non-resident tax status and assessed her for £3,142,550 in additional tax.

She accepted that she had spent 50 nights in the UK during the relevant tax year –five nights more than the 45 nights permitted under the statutory residence test (SRT) contained in the Finance Act 2013. She asserted, however, that there were exceptional circumstances, beyond her control, which prevented her from leaving the UK on the excess nights in question.

Allowing her appeal against the tax demand, the First-tier Tribunal (FTT) found that she had twice returned to the UK to visit her sister, who was suffering from alcohol addiction and depression. Whilst not accepting that her visits were prompted by her sister’s threats of suicide, the FTT found that she needed to be in the UK to look after her sister’s children until alternative care arrangements could be made.

In upholding HMRC’s challenge to that outcome, however, the Upper Tribunal (UT) found that the FTT erred in law in finding that she was ‘prevented’ from leaving the UK. It noted that the word ‘prevent’ means stopping something from happening, or making an intended act impossible, and connotes more than a mere hindrance.

In finding that exceptional circumstances applied, the FTT reached conclusions on the evidence that were inconsistent, and thus perverse. It further erred in failing to consider whether all elements of the SRT were met on each of the five excess nights, taken individually.

The UT acknowledged that the woman may have felt morally bound to remain in the UK to care for her sister’s children. However, it found on the evidence that any such sense of moral obligation did not amount to exceptional circumstances preventing her from leaving the UK. In upholding the tax demand, the UT ruled that she was resident in the UK during the relevant tax year.

Terminally Ill Woman’s Marriage Triggers High Court Inheritance Dispute

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It is quite common for people to get married in the knowledge that they only have a short while to live. However, as a High Court ruling underlined, such a step is often fraught with legal difficulty in terms of inheritance and should never be taken without legal advice.

The case concerned a woman who was fully aware that she was terminally ill. Her assets in England and abroad were worth about £10 million. She was being cared for in a hospice when, a few days prior to her death, she made a will with the help of a priest and a man who was described on her admission papers as her close friend and next of kin. She executed the document without having received professional legal advice from a solicitor.

By the will, she left around one sixth of her estate to the friend, bequeathing most of the balance to her sister and members of her family. However, on the same day that she signed the document, she and the friend were married in a religious ceremony. That was followed soon afterwards by a civil ceremony at which her sister served as a witness. Three days later, she died.

The friend subsequently launched proceedings, asserting that the marriage had the effect of revoking the will and that she therefore died intestate. As her husband and next of kin, he asserted that he was thus entitled to inherit the entirety of her estate. His claim was resisted by the sister, but he applied for summary judgment on the basis that her defence had no real prospect of succeeding.

Ruling on the matter, the Court noted the general rule contained in Section 18 of the Wills Act 1837 that, when a couple get married, any previous wills either of them have made are automatically revoked. That provision does not require them to have any intention to revoke their wills or even to be aware of the rule’s existence.

In rejecting the friend’s application, however, the Court found that the sister had a real prospect of establishing that the woman made her will in anticipation of her forthcoming marriage. If it could be shown that she intended her will to survive her nuptials, an exception to the general rule would apply. Some, but not all, other aspects of the sister’s defence were also viable and the Court found that the matter could only be resolved fairly following a full trial on the merits.

Please do get in contact if you have any form of inheritance dispute.

Pre- and Post-Marital Agreements Given Full Weight in Big Money Divorce

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Couples who enter into pre- or post-marital agreements with their eyes open and with the benefit of legal advice can expect to be bound by them. The High Court made that point in a so-called ‘big money’ divorce case in which an extremely wealthy woman’s assets dwarfed those of her ex-husband.

Before their relatively brief marriage, the wife’s net assets were already valued at about £50 million. The husband’s net assets were worth about £225,000, plus a small pension and modest employment income. The wife’s wealth, which was entirely derived from her family, later swelled to £250 million.

They entered into pre-and post-marital agreements by which the wife undertook, amongst other things, that in the event of their relationship permanently breaking down, she would meet the husband’s reasonable housing needs until any children of the marriage reached adulthood or completed full-time education.

The husband agreed that he would have no claim against the wife’s assets and that she would have no obligation to pay him maintenance. The agreements specifically stated that the husband’s reasonable needs were met by their terms and that the principle of asset sharing should not apply in the event of divorce.

Ruling on the financial aspects of their divorce, the Court noted that the agreements were in entirely conventional terms and contained a warning that the couple should not sign them unless they intended to be bound by their terms. The husband could have been under no illusions as to the extent of the wife’s wealth and had received independent advice as to the effect of the agreements on his rights.

It was not a long marriage and the couple could have done no more to make clear their intentions as to what should happen in the event of separation in terms of their assets and the issue of spousal maintenance. In making financial orders designed to meet the husband’s reasonable housing and income needs, the Court ruled that the agreements should carry full weight and were largely decisive as to the outcome.

Undue Influence – Vulnerable Mother ‘Coerced’ into Making Will

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Making a valid will requires an exercise of independent decision-making, free from the undue influence of others. The High Court powerfully made that point in finding that a daughter coerced her ailing mother into bequeathing everything to her.

The mother was aged 82 when she made her one and only will, leaving her home and everything else she owned to one of her four daughters. She had by then been diagnosed with dementia and had suffered a suspected stroke. She died three months after signing the document. A legal challenge to the will’s validity was later brought by two of her disinherited daughters and four of her grandchildren.

Ruling on the matter, the Court noted that the circumstances were suspicious. No solicitor was involved in the preparation and execution of the will and the mother was not medically examined at the time. The Court was not, however, satisfied on the evidence either that she lacked the mental capacity required to make a valid will or that she did not know and approve of the document’s contents.

In nevertheless ruling the will invalid, the Court found that the facts pointed inevitably to a conclusion that the daughter who became her sole beneficiary had coerced her into making it. She may have believed that she was simply persuading her mother to do the right thing, but the undue influence that she brought to bear went far beyond persuasion.

The mother was very vulnerable, both physically and mentally, when she signed the will. She had been devastated by the recent death of one of her daughters and was probably still grieving deeply. After moving in with her, the daughter who benefited under the will had taken steps to isolate her from other members of the family. The daughter’s assertion that she had nothing to do with making the will was inherently unlikely.

The Court found that the mother signed the will not as a free agent but because her volition had been overcome by her daughter’s undue influence. The decision meant that she died without making a valid will and that her estate would be distributed amongst her next of kin in accordance with intestacy rules.

If you have concerns about undue influence or the validity of a will, please do contact us, we have specialist, experienced lawyers who can advise you.

Stamp Duty Avoidance Scheme Goes Pear Shaped – A Cautionary Tale

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Tax avoidance schemes are not always effective and can have serious unforeseen consequences. In a telling case on point, a man was required to pay the entirety of the Stamp Duty Land Tax (SDLT) due on a seven-figure property transaction, a bill that he would otherwise have shared equally with his then wife.

The then couple initially contemplated a straightforward purchase of the property for £1.075 million. Had that happened, the property would have been conveyed into their joint names, rendering them equally liable to SDLT. In the event, however, they elected to take a different course with a view to saving SDLT.

The scheme envisaged that the wife alone would agree to purchase the property for £1.075 million. She would then agree to sell it on to the husband for £10,000. The property’s freehold would then be transferred by the vendors directly to the husband alone. The husband subsequently declared to HM Revenue and Customs (HMRC) that the chargeable consideration for the purchase was £10,000 and that no SDLT was due.

HMRC disputed that proposition and the husband conceded that the scheme had not worked as planned and was ineffective. He was required to pay SDLT on a purchase price of £1,085,000. That was £10,000 more than if the scheme had not been carried out. Following the couple’s divorce, the First-tier Tribunal (FTT) agreed with HMRC that the whole SDLT liability fell on the husband alone.

Challenging that outcome, he argued that, following the property’s transfer, he held it on implied trust for himself and his wife. As they were joint beneficial owners of the property, he said that he should only be liable for one half of the SDLT bill. The Upper Tribunal (UT), however, found no fault in the FTT’s conclusions on the evidence and dismissed his appeal.

The UT noted that, in essence, the failed scheme required the husband to become the property’s sole beneficial owner on completion of the purchase. That was what the couple intended and some care was taken to achieve that result. He was to be regarded as the transferee under the conveyance, which vested the property, both legally and beneficially, in him alone.

Court of Appeal Analyses Will Revocation Clause in Guideline Decision

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Included in most people’s wills is a clause that has the effect of revoking all their previous wills. Such straightforward provisions are usually uncontentious but, as a guideline Court of Appeal ruling showed, they can give rise to difficulties where a testator has assets both in England and abroad.

A businessman had substantial assets in England and India when he died at the age of 72. He made a will in 2007 dealing with all of those assets. However, he made another will in 2016 which disposed only of his Indian assets. The 2016 will was declared to be his last and included a clause that revoked all such previous documents.

After an inheritance dispute broke out between members of his family, a judge found that the meaning of the revocation clause could not have been clearer and that it revoked the 2007 will in its entirety. That meant that the businessman died intestate – without having a valid will in place – save in respect of his Indian estate.

A more senior judge, however, subsequently took a different view on appeal: he found that the revocation clause was only effective to revoke the 2007 will to the extent that it dealt with the businessman’s Indian assets. That meant that his English assets would be distributed in accordance with the 2007 will.

Upholding a challenge to the latter ruling, the Court noted that, given the clear and unambiguous terms of the revocation clause, the businessman was, on the face of it, to be taken as having intended the 2016 will to be not only his primary will but his only will. Circumstantial and other evidence before the Court fell short of displacing such a conclusion.

The businessman may well have assumed that all but a relatively modest lump of his English assets had already been dealt with by way of lifetime gifts. He may have regarded his English estate as less pressing and something that could be dealt with at a later date. The legal presumption that he did not intend to die intestate was quite weak in the circumstances and insufficient to overcome the natural meaning of the revocation clause. The Court’s ruling meant that the 2007 will had been wholly revoked.

Inheritance Dispute Focuses on Successful Family Catering Business

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When making your will, the general rule is that you are free to leave your assets to whomsoever you wish. However, as a High Court case concerning ownership of a thriving family business showed, such testamentary freedom may be restricted by agreements reached, or promises made, during your lifetime.

During their marriage, a man and woman established a successful catering company in which they were equal shareholders. Following their divorce, they signed a deed by which they agreed that any shares in the company that they continued to hold when they died would pass to their two children.

The man did not comply with that agreement. Less than a year after entering into the deed, he made a new will bequeathing his shares in the company to his second wife. After he died suddenly, aged 66, his first wife and her children launched proceedings with a view to enforcing the deed so that, regardless of the terms of his will, his shareholding would pass to the children.

In upholding the claim, the Court found that, when the man signed the deed, he freely accepted his obligation to leave his shares to the children. The document was in plain terms and would have caused him no confusion as to its effect. His widow’s arguments that the deed had been superseded or revoked by a subsequent agreement were rejected.

For experienced legal advice on a dispute over a will or probate, please do get in contact with us

Even Acts of Generosity Should Be Properly Documented – Cautionary Tale

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Even acts of generosity can lead to litigation if the basis for them is not professionally documented. That was sadly so in the case of a businessman who stepped forward to rescue close family friends from the threat of homelessness.

A couple with five children found themselves in dire financial circumstances. After the man was made bankrupt, an enforced sale of the family home was threatened. Their repeated attempts to obtain loan finance were rejected. The businessman came to their rescue by himself raising a £205,000 mortgage against the property.

Pursuant to an informal agreement between them, the property was transferred into the businessman’s name and the mortgage advance was paid to the couple, who used it satisfy their creditors and stave off possession proceedings. The couple thereafter met the mortgage repayments and continued to live in the property.

About eight years later, they sought to buy back their home from the businessman for the unchanged sum of £205,000. In resisting their request, however, he asserted that it had been agreed at the time that their entitlement to repurchase the property from him at that price would lapse two or three years after the transaction.

Ruling on the matter, the High Court noted that all involved had acted in great haste to face down the imminent financial peril that the couple faced. The businessman generously found a solution that could be implemented speedily and that secured the couple’s ability to carry on living in their family home.

In nevertheless upholding the couple’s case, the Court found on the evidence that the buyback agreement was open-ended and not time limited. Whilst that would be a very surprising outcome in a commercial context, it reflected the imminence of the possession proceedings and the close and affectionate relationship that the couple and the businessman had enjoyed at the relevant time.

It would, the Court found, be unconscionable for the businessman to go back on his assurance that the couple could, at any time, buy back their home from him for £205,000. They had relied on that assurance to their detriment. The ruling opened the way for the couple to repurchase their home from him at that price, plus any costs associated with discharging the mortgage and transferring title to the property.

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