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Nil Rate Band Legacies

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Posted by Katie Alsop on 19 December 2014

Katie Alsop - Will Disputes Lawyer
Katie Alsop Partner

Loring –v- Woodland Trust [2014] EWCA Civ 1314

The Court of Appeal has recently decided that the value of a Nil Rate Band legacy given by a Testatrix in her Will included the unused Nil Rate Band of the Deceased’s husband.   This meant that the Nil Rate Band legacy given under the terms of the Deceased’s Will equated to a sum of £650,000.   The Woodland Trust failed to succeed with the argument that only the Deceased’s unused Nil Rate Band allowance should be used to calculate the value of the legacy to the Deceased’s family. This resulted in a significantly lesser distribution to the Woodland Trust.

Transferable Nil Rate Bands were introduced in 2007 and the construction of “Nil Rate Band Legacies” in Wills made before the introduction of the transferrable Nil Rate Band, where a Deceased has since acquired the transferred Nil Rate Band at the date of their death, has presented various problems.  Whether the amount passing to the beneficiary is equal to one or two Nil Rate Bands depends on the specific terms of the Will.

In Loring -v- Woodland Trust, the Deceased made her Will in 2001 which included a bequest, to members of her family, of such sum as at the date of her death was the amount of her unused nil-rate band allowance for inheritance tax purposes. The remainder of her Estate passed to the Woodland Trust. 

The amount payable to the Woodland Trust was dependent on whether the Deceased’s Husband’s transferrable Nil Rate Band could be taken in to account.  In terms of value, this would make a difference of over £300,000.  The Woodland Trust advanced an argument that the reference to “my” Nil Rate Band in the Deceased’s Will should be interpreted so as to mean the value of the Deceased’s Nil Rate Band and, that it should not take into consideration any transferred Nil Rate Band allowance available from the Deceased’s husband.  

At first instance, Asplin J. based her reasoning on the Inheritance Tax Act 1984 which led to a finding that the legislation was clear that the effect of a successful claim is retrospective and that the effect of a claim is that the maximum Nil Rate Band at the time of the Deceased’s death is treated as “increased” as at that date by the amount of the unused transferrable Nil Rate Band.  The result of this decision was that the Deceased’s Nil Rate Band allowance was increased to £650,000.  That sum was determined to be the value of the Nil Rate Band legacy which should be paid to the Deceased’s family.  

The Woodland Trust appealed the decision.  However, the Court of Appeal agreed with the first instance decision.   That having been said, it did not find this an easy matter to decide.  Lewison LJ. said that it was necessary to look at the Will as a whole to establish its meaning.   It was clear that the purpose of the Deceased’s Will was to give as much as possible to her family without incurring Inheritance Tax.  It was only when the maximum amount which could be given tax free to the family had been exhausted, that the Woodland Trust should benefit from any residue.

It is reassuring to know that the Court will look at a case in the round when dealing with these types of matters.  However, it is of course the safest option to be clear in your Will in how you wish any Nil Rate Band legacy to be dealt with and to clarify if your Executors have authority to claim any unused transferable Nil Rate Band allowance to which you are entitled.

If you require any advice regarding Nil Rate Band legacies, please contact us or alternatively, if you are currently involved in a dispute or need advice in relation to the interpretation of the terms of a Will, please contact Katie Alsop on 01926 884610.

About the author

Katie specialises in contested wills, disputed estates and the removal and substitution of executors.

Katie Alsop

Katie specialises in contested wills, disputed estates and the removal and substitution of executors.

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