Private Client Legal Updates (31 August 2022)

A summary of key legal updates for the Private Client industry over the past week is as follows. 

Contentious probate – testamentary capacity case

The appeal ruling has been published in Clitheroe v Bond (2022 EWHC 2203 Ch) with the High Court upholding the 2020 judgment that the deceased's two Wills were invalid due to testamentary incapacity. The Wills disinherited the deceased's daughter and left the whole estate to the deceased's son. There were handwritten instructions from the deceased explaining the reasons for excluding her daughter; however, the daughter challenged the Wills and was able to produce enough evidence of testamentary incapacity to successfully make her case. This evidence showed the deceased was suffering from an affective disorder related to the death of the deceased's eldest daughter and was suffering from an insane delusion that the claimant daughter was lying about being abused by her father. The High Court found that the previous ruling had not correctly analysed the "insane delusions", but nevertheless, the overall finding of lack of testamentary capacity should stand. The case is interesting for its analysis of the insane delusions and also for (again) confirming the correct test for capacity is that set out in Banks v Goodfellow rather than that in the Mental Capacity Act 2005. Sister defeats brother's appeal in Banks v Goodfellow E&W estate dispute | STEP

Offshore – tax compliance for property-holding overseas entities

In September, HMRC will launch a new campaign aimed at foreign companies with possible unpaid UK tax obligations in respect of UK property. The letters will recommend the companies check whether disclosures are required for non-resident corporate rental income, the annual tax on enveloped dwellings, the transfer of assets abroad legislation, non-resident CGT and income tax under the transactions in land rules. UK tax authority focuses efforts on offshore corporates owning UK property | STEP

Vulnerable client – deprivation of capital guidance

The Local Government and Social Care Ombudsman ("LG&SCO") has issued Deprivation of Capital: Guidance for practitioners (guidance) aimed at local authorities deciding whether someone has deliberately deprived themselves of assets to avoid paying residential care home fees. The guidance sets out the LG&SCO's approach to investigating complaints and how local authorities should apply the relevant legislation. There are several key issues and learning points, one of which relates to the treatment of gifts. The guidance notes that some councils incorrectly treat all gifts as deprivation of capital and this blanket approach needs to be avoided. There needs to be intention on the part of the donor to deprive themselves of capital to avoid care costs, and there are a list of factors which councils need to take into account in analysing this. The OPG's guidance on gifting is referred to in the context of attorneys and deputies. Local Government and Social Care Ombudsman issues deprivation of capital guidance for local authorities | Practical Law (thomsonreuters.com)

Trusts – insolvent foreign trustees and UK property

In Hamilton v Her Majesty's Attorney-General and others [2022] EWHC 2132 (Ch), the High Court held that freehold property held on trust by a non-UK company will not escheat to the Crown upon that company's dissolution but will vest in the Crown as bona vacantia (ownerless goods). The opposite is true for foreign companies that are not trustees. The significance is that even if the former corporate trustee is restored to the register, it cannot apply for a vesting order under the Law of Property Act 1925, as this is only available if the property has passed by escheat. A vesting order under the Trustee Act 1925 should be sought. The court also held that restoration of a foreign former trustee would not mean the English property automatically re-vested in it. Legal title to freehold property not extinguished on dissolution of foreign trustee and no automatic recovery of title by restored trustee (High Court) | Practical Law (thomsonreuters.com)

Tax – interest rate on IHT paid in yearly instalments

As from 23 August 2022, HMRC have increased the rate of interest on late payments of inheritance tax from 3.75% to 4.25%. HMRC interest rates for late and early payments - GOV.UK (www.gov.uk)