By Lesley King, College of Law, London


Service saving

An interesting news item appeared in the Exeter Express & Echo on 31 May 2007. It reported that a local firm of solicitors saved a family £1 million in inheritance tax (IHT) by claiming the death on active service exemption in relation to the estate of an 83-year-old veteran of the Second World War, who sustained injuries in France in 1944 but did not die until 2005.



The exemption is contained in section 154 of the Inheritance Tax Act 1984 and applies where a person was a member of the armed forces and was on active service against an enemy (or other service of a warlike nature involving the same risks, in the opinion of the Treasury). It provides that there will be no IHT charged on the death estate of a person certified by the Ministry of Defence or the secretary of state as having died from a wound inflicted, accident occurring or disease contracted while on active service, or a disease contracted at some previous time, the death being due to or hastened by the aggravation of the disease during active service.



In Barty-King v Ministry of Defence [1979] 2 All ER 80 (decided on an earlier section), Mr Justice May said 'the purpose and nature of the legislation seem to me to require a benevolent interpretation in favour of the estate of the deceased'. In Barty-King, the fourth Duke of Westminster had died of cancer in 1967 after sustaining a wound in 1944 while on active service. Mr Justice May held that the proper question for the court to ask was 'whether the wound was a cause of the deceased's death, and not whether the wound was the direct cause of the death'.



The exemption only relates to IHT payable on the death estate (or by concession to the ending of certain life interests created in the will of persons dying on active service). It does not relate to any other tax or duty payable by reason of the death, for example tax chargeable on a lifetime transfer or when a discretionary trust comes to an end, in whole or in part, on

the death.



To claim the exemption, it is essential to obtain a certificate. There are two forms of certificate: a simplified one for deaths of currently serving people where there is no doubt that section 154 is satisfied and one for other deaths. Paragraph 11291 of Revenue & Customs' IHT manual deals with the procedure for claiming exemption. Applicants should request certificates from Wendy Gower, JCCC Deceased Estates, Room 115, Building 182, RAF Innsworth, Gloucester GL3 1HW, and should send the Ministry of Defence the deceased's service number, a copy of the death certificate, and any supporting medical evidence which seems relevant (such as a post-mortem report).



By concession (extra-statutory concession F5), the exemption is applicable to the estates of members of the Police Service of Northern Ireland (or the previous police authority, the Royal Ulster Constabulary) who die from injuries caused in Northern Ireland by terrorist activity. The exemption, while infrequently available, is clearly valuable in appropriate cases.



No marriage of minds

Worth reading is Burden & Burden v UK [2007] WTLR 607. The decision itself is unsurprising. Two elderly, unmarried sisters who have lived together their whole lives, for the last 30 years in a house built on land inherited from their parents, complained to the European Court of Human Rights that the lack of a 'spouse' exemption from IHT amounted to discriminatory treatment in respect of their right to peaceful enjoyment of their possessions.



As would be expected, they were unsuccessful but only by a margin of 4:3. The majority held that the UK could not be criticised for pursuing through its taxation system policies designed to promote marriage. Neither could it be criticised for making those fiscal advantages available to committed same-sex couples.



In assessing whether the means used are proportionate to the aim pursued, and in particular whether it is objectively and reasonably justifiable to deny co-habiting siblings the IHT exemption which is allowed to survivors of marriages and civil partnerships, the court took into account both the legitimacy of the social policy aims underlying the exemption, and the wide margin of appreciation that is available to states when assessing the extent to which differences in otherwise similar situations justify a different treatment.



Any system of taxation, to be workable, has to use broad categorisations to distinguish between different groups of taxpayers. The implementation of any such scheme inevitably creates marginal situations and individual cases of apparent hardship or injustice, and it is primarily for the state to decide how best to strike the balance between raising revenue and pursuing social objectives.



However, there were strong minority judgments. Judges Bonello and Garlicki said that once an applicant is able to demonstrate that the way in which the tax legislation was applied created a situation of apparent hardship or injustice, the onus shifts towards the government, which must then show that there were good reasons for its actions. Having once decided that a permanent union of two persons outside marriage could or should enjoy tax privileges, the UK must justify why such a possibility has been offered to some unions while continuing to be denied to others.



Judge Pavlovschi commented on the unfairness of the situation: 'I find such a situation fundamentally unfair and unjust. It is impossible for me to agree with the majority that, as a matter of principle, such treatment can be considered reasonable and objectively justified. I am firmly convinced that in modern society there is no "pressing need" to cause people all this additional suffering.'



Influential decision

Finally, Goodchild v Bradbury [2007] WTLR 463 is an interesting Court of Appeal decision on undue influence. It makes clear that the presumption of undue influence is not rebutted just because the donor left a statement that he had wanted to make the gift and that the donee had not exerted any pressure. The question is whether or not the donor made the gift after full, free and informed consideration, and knew and understood what he was doing.