IMPLICATIONS OF ‘PHIZACKERLEY’ CASE ON WILL TRUST

DON’T PANIC! MOST DISCRETIONARY TRUST ARRANGEMENTS ARE NOT AFFECTED. BUT DO CHECK YOUR WILL!

‘The Phizackerley Case’ is important to anyone who has a Discretionary Will Trust or was considering setting up a Will Trust to avoid inheritance tax, because it underlines the importance of making sure your will is up to date and that it has up-to-date and relevant clauses in the light of any change in the rules. For couples, who both worked and who bought their home between them it has no immediate implications

In brief, Dr and Mrs Phizackerley became ‘tenants in common’ and set up their wills so that on first death, up to half the value of the family home passed to the survivor in trust on the basis that on their death the value was returned to the trust and on to the children free of inheritance tax. It’s the basis of most couple’s planning to mitigate inheritance tax and in 90% of cases works well without IR contention and should continue to do so.

Mrs Phizackerley died first and unfortunately, the IR took the stance that as Dr Phizackerley was the sole bread winner and had essentially provided the funds to pay for the house, Mrs Phizackerley had not contributed to the value of the home and so the Will Trust Scheme could not apply. In brief, their argument was that due to longstanding anti-avoidance legislation (S103 of the 1986 Finance Act) property paid for by one partner, then transferred to the second and left to the first partner in a will is a device to avoid IHT and can be disregarded.

If Dr Phizackerley had died first, the trust would have worked perfectly well. However, there are ways to get around this, but they must be included in your will. However here’s a brief checklist as to whether or not you should be taking further advice:

Assuming you have married, have Discretionary Trusts for your ‘Nil Rate Band Allowance’ in your will and have become tenants in common:

DID YOU AND YOUR SPOUSE BOTH WORK AND CONTRIBUTE FINANCIALLY TO THE PURCHASE OF YOUR HOME?

No action required.

WAS ONE OF YOU THE MAIN BREADWINNER THROUGHOUT THE PURCHASE OF YOUR HOME?

Take advice.

DID ONE OF YOU ORIGINALLY OWN THE HOUSE OUTRIGHT AND TRANSFER THE PROPERTY INTO JOINT NAMES AT SOME POINT?

Take advice.

You can find more information on the case here:

http://www.ifaonline.co.uk/public/showPage.html?page=ifa2006_articleimport&tempPageName=443349

http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/04/14/nherit14.xml

http://db.riskwaters.com/public/showPage.html?page=ifa2006_articleimport&tempPageName=442136

Even if you fall into a similar category as the Phizackerleys, there are answers to the problem and we can provide a review of your will if you e mail us or phone on 01563 821117. Clients who completed in the last 12 months are welcome to a free review and to any changes they request as a result at no charge.



Posted on 16 April 2007 at 10:43 by John