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INHERITANCE TAX: Phizackerley v Revenue & Customs [2007] UKSPC SPC00591 (14 February 2007)

Date:14 FEB 2007

The husband and wife purchased the matrimonial home in 1992 and it was put into their joint names. It was agreed that the husband must have provided the funds for the purchase. In 1996 the joint tenancy was severed and they held the property as tenants in common. When the wife died her share of the property fell into the nil rate band discretionary trust established by her will. Her share was assented to the husband on his promising to pay the value of the share to the trustees of the nil rate band discretionary trust. On his death the Inland Revenue claimed that the debt was non-deductible for inheritance tax purposes under s 103(1) Finance Act 1986, because the consideration given for it was property derived from the deceased (ie the matrimonial home, which was originally purchased by the husband). The daughter of the husband and wife was therefore liable to pay inheritance tax on the whole property. She appealed to the Special Commissioners.

Dismissing the appeal and confirming the Notice of Determination the Special Commissioner held that the debt was not deductible under s 103 Finance Act 1986. The estate argued that the liability could be excluded by s 103(4) Finance Act 1986 as being not a transfer of value because it was for the maintenance of a spouse within s 11 Inheritance Tax Act 1984. While there were circumstances in which the transfer of an asset to a spouse could be maintenance, the ordinary meaning of the word had the flavour of meeting recurring expenses. The meaning is wide enough to cover the transfer of a house or part interest in a house only if it relieves the recipient from income expenditure, for example on rent. In this case the disposition had the purpose of providing security of ownership, and as such was not maintenance and could not be excluded.