This briefing note is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

Charitable giving vs inheritance tax savings: Woodland Trust v Loring
Tim Malloch
19 December 2014

Charitable giving vs inheritance tax savings: Woodland Trust v Loring

In this case the Court of Appeal upheld a decision of the High Court relating to a dispute that arose from a professionally drafted will executed by Mrs Valerie Smith in 2001.

Under the terms of the will Mrs Smith's residuary estate passed to the Lorings (three of Mrs Smith's children and two of her grandchildren) and the Woodland Trust.

Clause 5 of the will provided that from Mrs Smith's residuary estate, the Lorings were to receive "such sum as is at the date of my death the amount of my unused nil rate band for Inheritance Tax".

At the time of her death, the nil-rate band for inheritance tax purposes (IHT) was £325,000.  Clause 6 of the will provided that the executors, Mrs Smith's two sons, were to hold the remainder of their mother's residuary estate for the Woodland Trust.

At the time that Mrs Smith made her will in 2001 the amount of her single unused nil-rate band was £234,000. However, following the Finance Act 2008 (the 2008 Act) it was possible for any unused nil-rate band between spouses and civil partners to be transferred to the second spouse/civil partner on the second death.

Mrs Smith's husband had died in 1984 with an unused nil-rate band.  When Mrs Smith died in 2011 leaving an estate with a net value of £680,805 her executors made a claim under section 8A of the 2008 Act to increase Mrs Smith's unused nil-rate band from £325,000 to £650,000.

The Lorings contended that, as the effect of Section 8A of the 2008 Act was to increase the unused nil-rate band from £325,000 to £650,000, then the residuary gift to them also increased to £650,000 and that all that was due to the Woodland Trust was £30,805.

The Woodland Trust disagreed with this interpretation arguing that the will tied the nil-rate band to the amount unused at the date of Mrs Smith's death. The Woodland Trust also argued that Mrs Smith would have no control over whether or not her executors made a claim under Section 8A of the 2008 Act and that it would be surprising if Mrs Smith had intended that the scale of provision could depend on the choice of the executors unless her will had made this clear.  Lord Justice Lewison considered this to be the strongest of the Woodland Trust's arguments but rejected it on the basis that it attributed to Mrs Smith either an unlikely and sophisticated appreciation of the intricacies of IHT or an eccentric intention dependent on the precise mechanics of increasing the IHT nil-rate band. Lord Justice Lewison also noted that there was no evidence to show that Mrs Smith had been a keen supporter of the Woodland Trust.

The Court of Appeal rejected an unduly literal interpretation of the will. It found that it was necessary to look at the purposes and values which are expressed or implicit in the wording of the will in order to find the answer, and that the purpose of Mrs Smith's will was to give as much as possible to her family without incurring IHT and that the remainder should go to charity.   So, IHT savings aside, blood ties were seemingly preferred over the interests of a charity beneficiary, when examining what the Court considered the testatrix would have wanted.