PR’s of Glowacki (Deceased) v HMRC

25th September 2007

Malcolm Gammie; Special Commissioners; SpC 631; 21st August 2007

By her will, the Wife left her estate to her husband, after payment of a pecuniary legacy to her sister. The Husband survived her for a short while and, under his will, he left the matrimonial home to the Wife’s sister and the residue to be divided amongst the Wife’s sister, nieces and nephew. The Wife’s nieces were the Wife’s personal representatives.

The Wife’s sister, nieces and nephew made a Deed of Variation, after the death of the Husband. By clause 1 of the Deed they directed in respect of the matrimonial home that “there shall be such variation of [the Wife's] disposition of it as will have effect under the said sections 142 [of the Inheritance Tax Act 1984 and 62(6) [of the Taxation of Chargeable Gains Act 1992] as if [the Wife] in her lifetime and immediately before the transfer deemed to have been made by her under section 4 of the Inheritance Tax ]Act 1984 had transferred the [matrimonial home] to [the Wife's sister] for her own use and benefit absolutely.” There were other provisions, consequential on such an imaginary transfer by the Wife. It was agreed that section 142 of the Inheritance Tax Act 1984 would apply, with the proviso that if the effectiveness of the variations in Clause 1 were challenged and the challenge were successful, the variation would be of no effect.

All were agreed that the variation was within section 142 of the Inheritance Tax Act 1984. The Wife’s pr’s argued that the Deed should be read literally, so that inheritance tax should be charged as if the deemed gift of the matrimonial home to the Wife’s sister had actually taken place. HMRC argued that the effect of Clause 1 was to vary the disposition of the matrimonial home so that, instead of going to the Husband on the death of the Wife, it went to the Wife’s sister and it also disclosed an intention of the parties that the nil rate band of the Wife would be set first against the value of the matrimonial home.

It was held that “the ‘variation’ purported to be made by Clause 1 of the Deed was not a variation capable of taking effect under s142 and, as a result of the proviso, did not therefore take effect at all.”

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