The statutory legacy payable on intestacy to surviving spouses and civil partners rose as of 1 February 2009 to £250,000 where there are children and £450,000 where there are no children but parents or siblings.

Spouses and civil partners have a right to capitalise the life interest under sections 46 and 47 of the Administration of Estates Act 1925.

The capital value of the life interest is calculated according to tables in the Intestate Succession (Interest and Capitalisation) Order 1977/1491 (SI 1977/1491). The tables are based on the yield of 15-year government stocks, and the age and sex of the surviving spouse or civil partner.

With effect from 1 February, the Intestate Succession (Interest and Capitalisation) (Amendment) Order 2008 (SI 2008/3162) replaces the tables in the 1977 order with new tables that take into account increases in life expectancy and decreases in the yields on government stocks.

Interest on legaciesThe rate of interest payable on legacies is fixed by reference to the basic rate payable on money in court unless the will provides otherwise (practice direction 40, paragraph 15 of the Civil Procedure Rules. That basic rate changed to 2% on 1 February – it had been 4% since February 2002). There is a useful leaflet on the Court Funds Office website that gives interest rates payable on money in court going back to October 1965.

Applications for a grantThere are also changes to the procedure for applications for a grant of representation. The new IHT 400 inheritance tax account form (replacing the IHT 200) was launched on 17 November 2008. HM Revenue & Customs will accept IHT 200 accounts until 9 June 2009, but from that date the new IHT 400 account must be used.

HM Courts Service has issued a notice advising of a procedural change when solicitors are applying for a grant. From 1 January 2009, all applications must include two A4 copies of the deceased’s sworn will and, where applicable, codicil.

The notice contains advice on the required appearance and physical condition of the copies, and a warning that the application will be stopped and delayed if it does not comply with the new procedure.

The notice also includes advice that, if it is necessary to take apart either a will or codicil, to copy it. A letter should accompany the application to explain this and confirm that the will has been restored to its condition, prior to the copying.

The Law Society Probate Section expressed concern that some wills and codicils may be bound in such a way as to make it impossible to reconstitute them as they were before being copied. In the event of any query being raised about possible tampering with the will, valuable evidence as to the appearance of the will after death may be lost. HMCS responded by saying that, statistically, there are now very few wills created in a format that needs to be unbound before copying. It is clearly something that needs to be considered when preparing wills for clients.

Business property reliefA bit of good news on the business property relief front. HMRC has lost its appeal from the special commissioners in HMRC v Trustees of the Nelson Dance Family [2009] EWHC 71 (Ch). (Note, however, that the Revenue has been given leave to appeal.)

Nelson Dance (the deceased) carried on a farm business as a sole trader. The assets of the business included land and buildings. He transferred some of the land, which had substantial development value, to a discretionary settlement and died shortly afterwards. The transfer would attract inheritance tax unless it qualified for 100% relief. It was common ground that the land attracted agricultural relief on the agricultural value of the property, but that left the very considerable development value unrelieved. HMRC contended that relief was not available because the deceased had not transferred relevant business property. HMRC lost before the special commissioners and also before Mr Justice Sales in the Chancery Division.

Section 104 of the Inheritance Tax Act 1984 provides that relief is available where the value transferred is ‘attributable to the value of any relevant business property’, and ‘relevant business property’ is defined in section 105 as, inter alia, ‘a business or interest in a business’. HMRC argued that the deceased had not transferred a business; he had merely transferred individual assets, so relief was unavailable.

However, other sections of the act are relevant. Section 110 defines ‘value of a business’ as the value of its assets reduced by its liabilities.

Mr Justice Sales held that all that is necessary for relief to be available under section 104 is that the value transferred can be attributed to the value of the deceased’s business. It is irrelevant that it is also possible to attribute value to the assets transferred. The wording of section 104 is convoluted, but in the case of a business there is a direct cross-reference to the simple test in section 110 to determine whether the value transferred is attributable to the value of the business. The operation of section 104 does not require a choice to be made to make an attribution exclusively to one category or the other. If the land transferred was used in the business then the value to be attributed to it would, inevitably, also be attributed to the value of the business by section 110.

This reading of the legislation makes life much simpler for taxpayers by giving a straightforward test. However, it raises a query as to the policy behind business property relief. The transfer the deceased made was not made for the purposes of his business. In fact it was made with the intention of removing assets from his business without consideration. In the present economic climate, it might not be too surprising if the government took a close look at the detail of business property relief.

Apportioning trust expenses between capital and income The Court of Appeal judgment in HMRC v Trustees of Peter Clay [2008] EWCA Civ 1441 is worth a look on this question. The court held that it was beyond argument that an expense incurred ‘for the benefit of the whole estate’ must be charged to capital. However, those portions of expenses which can be shown to relate exclusively to income can be set against income. The onus is on trustees to demonstrate that part of a trust management expense relates exclusively to income, which may require detailed record-keeping.

Professor Lesley King, College of Law, London