Spring 2005 Newsletter Content Home Sweet Pension Anything To Declare? Death And Taxes His And Hers Oh, Gross! We Didn't Mean It Agassi Wins Time To Go It Could Be Worse... Trivial Pursuit Re: Mortgages A Marriage Made In... Time's Money Show Business Scam Of The Decade? Gift Aid Vat's Hot! Wait For It A Good Buy? Know Your Articles Rights And Wrongs

We Didn't Mean It The basic inheritance tax plan is to give away what you own and then try to live as long as possible. The big problem with the plan is that you may not want to live so long when you have given away all your stuff. Getting it right is a balancing act - and 'having your cake and giving it away' has been the objective of clever tax planners for years. One particular plan, which the Government have now closed down, involved giving away the freehold of your house while keeping a lease. The lease let you live in the house, but it became worth less and less as time ran out. If you got it exactly right, you would expire a week before the lease did, and it would have no value in your estate at all - the freehold would have taken all the vacant possession value, but it would have been given more than seven years ago, and would be free of IHT. A couple set up this plan in 1997, retaining a 20-year lease. It appears that last year they suddenly realised why it would work so well - in 2017, if they were still alive, they would no longer be entitled to live in the property. They didn't like that idea, so they went to court to try to cancel the whole thing. The freeholders - their children - didn't object, and the court allowed them to rip up the plan on the basis that it had all been based on a misunderstanding of what was involved. That all seems to have ended happily for the moment - apart, presumably, for some wasted professional fees and a lot of wasted time. But there would have been a big problem if the freeholders had fallen out with their parents in the meantime, or had been declared bankrupt, or had pledged the freeholds to secure borrowings. It's very important that you understand the full consequences of any plan of this sort - if you have any arrangements like this, or you hear of any and are interested in how they work, we will be happy to advise you. The case was Wolff and anor v Wolff and others. The parents asked for the cancellation of the plan using the doctrine of 'mistake', which requires a mutual misunderstanding of the consequences of legal actions, and is relatively rarely used. As the freeholders were happy to concur, it would still have been possible for them simply to give the freeholds back again - but there might have been worse tax consequences from doing that. The 'mistake' may have come to light because of the Finance Act 2004 rules on previously-owned assets. The plan at issue - sometimes called an 'Ingram plan', after the tax case which showed that it worked - is caught by the FA 2004 rules, and the Wolffs may have been advised to look closely at their arrangements to see how they would be affected. They then realised that their arrangements were not what they intended them to be. They were certainly lucky that no other legal interests had intervened to stop them cancelling the plan, and perhaps lucky that the court agreed that 'mistake' could be used.