Spc00742

Inheritance tax - Death - liability for tax - building society account not notified prior to issue of Clearance - account part of deceased's estate for inheritance tax purposes - estate distributed by executors before they realised that account part of taxable estate - nature of asset - whether settled property - persons liable for tax attributable to property in account - persons liable for tax attributable to other assets - Inheritance Tax Act 1984 sections 4,5,43(3),200,204 and 211 

THE SPECIAL COMMISSIONERS

KEVIN BERNARD SMITH
MALCOLM BERNARD SMITH
	MRS SANDRA IRENE SMITH	Appellants

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

		

				Special Commissioner:  JUDITH POWELL

Sitting in public in London on 28 October 2008

The Appellants in person

Mr Ryder, HMRC, for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.	The deceased transferred a building society account into the joint names of herself and her one son, Mr Malcolm Smith, before she died on the basis that she would be solely entitled to the interest earned by that account and he would become entitled to the capital when she died.  Due to a misunderstanding the value of the account was not included in the inheritance tax return submitted by the executors who were Mr Malcolm Smith and his wife Mrs Sandra Smith and tax was calculated and paid without regard to the value of the account.  The executors submitted an application for clearance which was granted and the estate was distributed in accordance with the Will.  Legacies were paid to the grandchildren and great grandchild of the deceased and the residue was distributed to the deceased's two sons Mr Malcolm Smith and Mr Kevin Smith.  Subsequently the building society account was reported to HMRC and Notices of Determination were issued on the basis that Mr Kevin Smith was liable for a part of the additional tax due as a recipient of assets distributed to him in accordance with the Will of the deceased, that Mrs Sandra Smith was liable as executor and on the basis that the executors in their capacity as such were liable for tax attributable to the value of all the assets forming part of the deceased's taxable estate including the value of the building society account and that Mr Malcolm Smith was liable for the same reasons as Mr Kevin Smith (as recipient of his share of residue) and as Mrs Sandra Smith (as executor) and also separately as recipient of the assets in the building society account which had passed to him outside the Will when the deceased died. Each of the Appellants contended that the Notices were incorrect.  Mr Kevin Smith contended that he should not be liable for any tax resulting from the discovery that the building society account was taxable, Mrs Sandra Smith contended that she should not be liable for tax attributable to the account which she had not received as executrix and which she said had been dealt with outside the Will and Mr Malcolm Smith contended that the account was subject to a trust in his favour.  During the oral hearing Mr Ryder for HMRC agreed that, whatever the nature of the property in the building society account, the Notice to Mr Kevin Smith did require adjustment since it did not currently reflect that he was liable only to the extent of the tax attributable to the property he had received. 
2.	Held - that the property in the building society account was settled property and that the person liable for the tax attributable to it was Mr Malcolm Smith as trustee and as recipient of it and to the extent necessary his Notice would have to be adjusted.  He was also liable as executor of the estate for any additional tax due and which was attributable to the assets returned in the original inheritance tax return.  The Notice addressed to Mrs Sandra Smith in her capacity as executrix should be calculated on the basis of the tax attributable to the assets returned in the original inheritance tax return but not also on the basis of tax attributable to the building society account.  The Notice addressed to Mr Kevin Smith should be adjusted to reflect that he was liable for tax attributable to the value of the assets he had received and, if relevant, account should be taken of the fact that the property in the building society account was settled property.  Each of the appeals allowed in part. 
Cases referred to in decision 

Figgis, Re, Roberts v McLaren [1969] 1 Ch 123, [1968] 1 All ER 999 
Sillars and another v Inland Revenue Commissioners [2004] STC (SCD) 180 
The following decision was released.
The Appeals 
3.	The appeals are respectively by Mr Kevin Smith, Mrs Sandra Smith and Mr Malcolm Smith in relation to Notices of Determination under Section 221 IHTA 1984 dated 10 April 2008 and 22 May 2008.  They concern the estate of Mrs Joan Mary Smith who died on 15 March 2003.  The question concerns liability for the increased inheritance tax found to be due after the estate had been distributed in accordance with the Will and resulting from the discovery of an additional asset forming part of the estate but passing outside the Will to Mr Malcolm Smith. 
4.	The three appeals each involved the same facts although the effect on each of the Appellants is not the same.  Mr Kevin Smith asked for his appeal to proceed in his absence and the two other Appellants were content for their appeals to be heard together. 
5.	The beneficiaries of the Will include not only Mr Malcolm Smith and Mr Kevin Smith but also the grandchildren and great grandchild of the deceased.  The Notices of determination apply only to the Appellants but the Respondent has reserved the right to issue Notices to the grandchildren and great grandchild. 
6.	The calculation of that extra tax was payable was revised so that each of the original Notices was amended before the hearing which proceeded as appeals in relation to the revised amounts. At the oral hearing it was accepted by Mr Ryder for the Respondents that the Notice to Mr Kevin Smith required further amendment.  The reason for this is that his liability for tax arises from section 200(1)(c) as a person in whom property is vested but he is liable in that capacity only so far as the tax is attributable to the value of that property. Mrs Joan Smith’s Will provided for legacies in favour of her grandchildren and great grandchild and these legacies were paid free of tax. The tax payable as a result of Mrs Joan Smith’s death (calculated without regard to the value of the building society account) was deducted from the remaining assets in calculating the net value of the residuary estate which was then distributed to the persons entitled to residue.  
7.	Mr Kevin Smith was entitled to a one half share of the residuary estate. The discovery of the building society account increased the tax payable on Mrs Joan Smith’s death but Mr Ryder agreed that the tax attributable to the property he received as a result of that distribution was not one half of the additional tax (which was the basis of the calculation in the Notice) but was the same proportion of the tax payable as his distribution bore to the total value of distributions made - including distributions to legatees. A similar amendment might be necessary in relation to the assessment made on Mr Malcolm Smith in so far as it was made on him as a recipient of residue but his situation is different because he is also assessed as executor and as recipient of the Halifax account so that his total liability is likely to be unchanged as a result. 
The Facts 
8.	I heard oral evidence from both Mr Malcolm Bernard Smith and from Mrs Sandra Irene Smith.  The third Appellant, Mr Kevin Bernard Smith, was unable to attend the hearing due to ill health but asked for a letter he had written dated 17 October 2008 and had circulated to the other two Appellants and to the Respondents to be taken into account at the hearing. The Respondents made later written submissions on the question whether the building society account was settled properly and each of Mr Malcolm Smith and Mrs Sandra Smith wrote letters concerning their understanding of how that account was held.
9.	The agreed facts are as follows: 
10.	Mr Malcolm Smith and Mr Kevin Smith are the only two children of the deceased, Mrs Joan Smith.  She made her last Will on 11 March 2003 and this Will replaced an earlier Will made in a substantially similar form. The deceased appointed Mr Malcolm Smith and his wife Mrs Sandra Smith as executors and trustees.  She left specific gifts of £5,000 each to six named grandchildren and great grandchildren and the residue to be divided between her two sons Mr Malcolm Smith and Mr Kevin Smith in equal shares.  There were five grandchildren - four of whom are the children of Mr Malcolm Smith and one of whom is the child of Mr Kevin Smith - and one great grandchild who is the child of one of Mr Malcolm Smith's children. 
11.	A grant of probate of the estate was taken out by Mr Malcolm Smith and Mrs Sandra Smith on 20 May 2003 at Brighton District Probate Registry.  The assets in the sole name of the deceased were listed on an inheritance tax account.  The summary of chargeable assets in that account showed a total value of £261,576 and the main asset was the deceased’s house valued at some £255,000.  At the time of her death the maximum amount on which tax was payable at nil per cent was £250,000 and, since this maximum was available, only the sum in excess of £250,000 was chargeable giving a tax liability then thought to be £4530.40.  Tax referable to the house could be paid by ten equal annual instalments and the executors elected to do this.  The tax payable upon application for the grant of probate was £116.41 - tax is not payable in relation to instalment option property as a pre condition of obtaining the grant - and this was paid and probate was granted.  Subsequently the house was sold; this accelerated the payment of the tax referable to it because the instalment option continues only so long as the relevant property remains unsold. 
12.	Following correspondence with HM Revenue and Customs the value of the estate was agreed at £261,576 and inheritance tax of £4530.40 was paid and a statutory clearance certificate was issued on 17 October 2003 to Mr Malcolm Smith and Mrs Sandra Smith.  The net value of the assets listed in the account was subsequently distributed amongst the beneficiaries of the Will and in accordance with its terms.  Although a clearance application was made and granted this does not absolve anyone from liability for further tax falling due as a result of an additional asset coming to light as happened here. 
13.	On 1 June 2004, the solicitors then acting for the executors, RA Brett-Holt, Solicitors, wrote to HM Revenue and Customs disclosing the existence of an account with the Halifax Building Society in the joint names of the deceased and Mr Malcolm Smith.  The balance of the account at the date of the deceased's death was £36,085.68 with accrued interest of £52.40.  The whole of this amount was regarded as part of the deceased's estate for inheritance tax purposes. The building society account was not one of the assets listed on the inheritance tax account. The additional tax due as a result of this disclosure is £14,454.80 plus interest. 
14.	The Respondents accept that no fraud was involved in the failure to notify the existence of the account and that there was unlikely to have been negligence on the part of Mr or Mrs Smith and they do not seek a penalty from them for failing to disclose its existence in the inheritance tax account. 
15.	The monies in the Halifax account were acquired by the deceased from her husband when he died on 31 January 2002.  The account was put into the joint names of the deceased and Mr Malcolm Smith on 14 November 2002. 
16.	Each of Mr Malcolm Smith and Mr Kevin Smith received a share of residue from the executors and the value of that share exceeded the tax in the Notice addressed to them.  Mr Malcolm Smith and Mrs Sandra Smith took control of the assets in the deceased's sole name and the value of those assets exceeded the tax in the Notice addressed to them.  And Mr Malcolm Smith received the proceeds of the building society account as surviving account holder. 
17.	I heard oral evidence from Mr Malcolm Smith and I also received a letter from him at the beginning of December from which I find the following further facts. 
18.	Mr Malcolm Smith concluded from his conversation with a person working at the branch of Halifax Building Society shortly after Mrs Joan Smith died that the building society account need not be disclosed on the inheritance tax account; he was also aware that the existence of the building society account was known to the solicitors who prepared the inheritance tax account and relied upon them to prepare the account correctly.  
19.	From the time Mr Malcolm Smith married Mrs Sandra Smith the couple lived a mere two to three miles away from his parents, the deceased and her husband, and visited them regularly.  The deceased and her husband relied upon a small pension and the income from their savings which formed the basis of the balance in the Halifax account when the deceased died.  Mr Malcolm Smith often bought items for his parents such as a television, helped out financially with the maintenance of a car while his father was still able to drive, and he took considerable amounts of time off work at his own expense to accompany his father to hospital appointments and to visit him in hospital on some fifty separate occasions.  After his father died he shared in the care of the deceased; she lived with friends for some time whilst she was incapable of climbing stairs but when she lived at her own home he visited her at least two or three times each week.  He feels that he behaved as a "dutiful son". 
20.	After her husband died the deceased put the account into joint names of herself and Mr Malcolm Smith. There is no written evidence about the terms of the joint arrangements. I accept what Mr Malcolm Smith says about the arrangement which is that the deceased was entitled to receive the income produced by the account and he would receive the capital when she died.  Interest earned on the account was always paid into an account in the deceased’s name. As between each of them and the building society capital withdrawals could have been made but Mr Malcolm Smith would not have drawn capital during his mother's life because, whatever the terms of the mandate, he did not feel entitled to do so and his mother would not have withdrawn capital because she regarded it as being held for Mr Malcolm Smith when she died.  The deceased expected to receive the income as long as she lived and this is what occurred and Mr Malcolm Smith expected to receive the unreduced capital when she died and this is also what occurred.  I accept Mr Malcolm Smith’s explanation that the joint arrangements were made in recognition for the contribution he had made towards his parents welfare in time and money. The arrangements were voluntary on the part of Mrs Joan Smith; there was no formal record of the amounts of money he had spent on either or both of his parents nor any arrangement that whatever was spent was a loan to be repaid when the survivor died. I accept that the joint arrangements had been proposed during the lifetime of the deceased’s husband and by him and with the agreement of the deceased who was to carry the arrangements into effect. The deceased and her husband relied upon the income earned in respect of this capital sum to supplement their income. Mr Malcolm Smith’s father proposed an arrangement whereby after his death the money would be put into the joint names of the deceased and Mr Malcolm Smith with the intention that eventually they would pass to him as survivor but so that the deceased wuld receive the income during her life.  The deceased was party to these discussions and she put the account into joint names after her husband died and she continued to draw on the income which was transferred into her own account. The capital balance inherited from her husband remained unchanged until the deceased died so that although she might have drawn on it she did not do so. 
21.	I have said that Mr Kevin Smith did not attend the hearing but did send a letter to be considered in his absence.  There was no opportunity to question Mr Kevin Smith on the contents of this letter but it does not provide further facts.  His letter stated that he was unhappy the money in the building society account passed to Mr Malcolm Smith but he made it clear that he had decided not to pursue his views about this and accepted that it passed to his brother.  His letter was relevant only to emphasise his disagreement that he should have any liability for additional tax - particularly since he did not receive any additional cash as a result of the disclosure of the account the contents of which passed to his brother. 
22.	Mrs Sandra Smith became an executor of the Will and accepts that she is liable in that capacity for tax due.  Mrs Sandra Smith relied upon the solicitors in not including the building society account in the inheritance tax return for the same reasons as her husband had done.  I could see that she was distressed about her involvement in this matter and with the possibility that she might have a personal liability to pay additional tax particularly since, whilst she was fond of the deceased in a personal sense, she had not wanted to become officially involved in the administration of the estate as she was not a beneficiary.  She rather reluctantly agreed to become an executrix so that she could shoulder the day to day "running around" for information and relieve her husband, who is self employed, of that task.  I sympathise with the position she now finds herself in, particularly since the executors employed professional advisers. 
23.	The additional tax due as a result of the disclosure of the Halifax account was calculated and the question that arises, and which is the basis of this appeal, is the way in which this extra tax is to be borne. 
Relevant statutory provisions 
Burden of Liability 
24.	The provisions of the Inheritance Tax Act 2004 ("IHTA") which deal with the burden of liability are complex and those which are potentially relevant to this case are as follows. 
25.	Inheritance tax is charged on the value transferred by a chargeable transfer; a chargeable transfer is a transfer of value made by an individual but is not an exempt transfer.  Upon death of a person, section 4 IHTA provides that tax is charged as if, immediately before his death, he had made a transfer of value and the value transferred by it had been equal to the value of his estate immediately before he died.  Section 5 deals with the meaning of estate for these purposes.  The deceased did not make any exempt transfers. 
26.	Part VII IHTA contains provisions about liability for inheritance tax.  In particular, section 200 deals with liability for the assumed transfer made on death.  Section 200(1) imposes liability on four different groups of persons.  In considering the provisions about liability a distinction is drawn in paragraph (a) between tax which is attributable to property which immediately before the death was in a settlement (with special provisions for land which are not relevant in this case) and tax which is attributable to property which was not in a settlement.  Property in a settlement can form part of the estate of a deceased and such property will form part of the value transferred by the notional transfer of value made on death in which case tax can be attributable to it.  With that distinction in mind, the effect of section 200(1), insofar as it is relevant or possibly relevant in this case, is as follows. 
27.	As a result of section 200(1)(a), the deceased's personal representatives (Mr Malcolm Smith and Mrs Sandra Smith in this case) are liable for tax attributable to the value of the property which was not in a settlement immediately before the death. 
28.	Section 200(1)(b) provides that the trustees of a settlement are liable for tax which is attributable to the value of property which, immediately before the death, was comprised in that settlement.  If the property in the building society account was settled property the trustee is Mr Malcolm Smith. 
29.	Section 200(1)(c) provides that a person in whom property is vested (beneficially or otherwise) after the death is liable for tax attributable to that property; there are special provisions for persons entitled to an interest in possession in such property but these are not relevant here.  Mr Kevin Smith and Mr Malcolm Smith both received property from the deceased's estate and Mr Malcolm Smith received the money in the building society account so that both might be liable for tax under this provision to the extent that tax is attributable to the value of what they received. 
30.	Finally section 200(1)(d) imposes a liability for tax attributable to the value of property which, immediately before the death, was comprised in a settlement, upon any person for whose benefit any of the property or the income from it is applied after the death. This might be relevant to Mr Malcolm Smith's liability if the building society account was settled property. 
31.	The result of these provisions is that more than one person may be liable for tax payable as a result of death even where no settlement is involved.  For example, a beneficiary of an estate may be liable for tax as well as the personal representatives and there is more complexity where a settlement is involved as well. 
32.	Section 205 provides for the case where more than one person is liable; except as otherwise provided in IHTA each is liable for the whole of it. 
Statutory limits on liability 
33.	There are provisions in IHTA which limit liability.  Those possibly relevant in this case are found in section 204. 
34.	As a result of section 204(1) a deceased's personal representative shall be liable for tax in that capacity only to the extent of the assets he has received as personal representative or might have so received but for his own neglect or default.  (There are special provisions applying to settled land which are not relevant here).  The value of assets actually received by the executors during their administration of the estate exceeded the revised tax due even if they were liable for the tax attributable to the value of the Halifax account which will be the case unless it was settled property.  The executors accept that their liability is only limited by section 204(1)(a) to the value of the assets received by them or which should have been received by them and is not further limited once they have distributed the assets of the estate.  If they have distributed property but could otherwise have paid the tax out of what they had received (or might have received) they remain liable and might have to pay out of personal assets. 
35.	Where a person is liable as trustee, section 204(2) limits his liability to so much of the property he has received or disposed of or has become liable to account for to the persons beneficially entitled thereto and so much of the property as is for the time being available in his hands or might have been available but for his own neglect or default.  If the property in the account is settled property its value exceeds the tax attributable to it and this provision will not operate to limit Mr Malcolm Smith's liability as trustee. 
36.	The person who is liable for tax, not under section 204(1) or (2), but as a person in whom property is vested shall not be liable except to the extent of that property.  Each of Mr Malcolm Smith and Mr Kevin Smith has received value which exceeds the tax said to be due from him. 

Burden of tax on death 
37.	Section 211 deals with the burden of tax on death.  This section provides that, unless the Will provides to the contrary, tax for which a personal representative is liable is treated as a general testamentary and administration expense of the estate but only so far as it is attributable to the value of property in the United Kingdom which vests in the personal representatives and which was not immediately before the death comprised in a settlement.  Section 211(3) provides for the personal representatives to be repaid any tax paid by them which does not fall to be borne as part of the general testamentary and administration expenses by the person in whom the property to the value of which the tax is attributable is vested.  This might be relevant if the building society account is not settled property since it is not an asset which vests in the personal representatives and might give them a right to repayment if they are liable to pay tax attributable to the asset. 
Effect of inclusion of additional asset on amount of tax attributable to property 
38.	In this case the questions are of liability for the additional tax payable as a result of the Halifax account being a part of the deceased's estate for inheritance tax purposes.  The inclusion of this asset increases the tax attributable to the assets in the sole name of the deceased for reasons I explain below and of course there is tax attributable to the value of the property in the building society account itself. 
39.	There is no argument that the value of the building society account formed part of the estate of the deceased and was subject to inheritance tax when she died.  Where there is property which is settled and property which is not settled, the total amount of tax payable on the value of the estate is calculated and then apportioned rateably between these two types of property.  Where no settled property is involved the total tax is still attributed rateably between the property for the purposes of determining the tax attributable to, for example, property received by a beneficiary but the executors are then liable for the full amount of tax payable on the death of the deceased even if the property does not vest in them but passes outside the Will - subject to the limitations on their liability contained in section 200(1)(a) and their right to be repaid under section 211(3). 
40.	In this case the first £250,000 of value of this deceased's estate falls into the “nil rate band” which means that this part of the chargeable amount is taxed at nil per cent with the balance being payable at 40 per cent.  The value of the assets in the original inheritance tax account was slightly more than the nil rate band and, as soon as further assets are added to the value of the estate, the amount chargeable at 40 per cent increases correspondingly.  The total tax payable would, if there was both settled property and property that was not settled, be apportioned between the two types of property so that each would benefit from the nil rate band.  If the account was settled property the trustees would be liable for the tax attributable to that property and the executors would be liable for tax attributable to the property but that property would not benefit from the nil rate band to the same extent as would have been the case if the value of the account was not a part of the estate.  However, the liability of the executors, in their capacity as such, would be less if the account was settled property than if they were liable for all the tax payable on the deceased's estate and Mrs Sandra Smith is only liable in that capacity. 
Reasons for decisions 
Mr Kevin Smith 
41.	His submission was that it was unfair for him to pay any tax since the tax arose as a result of the existence of an account which did not pass under his mother's Will and did not benefit him. 
42.	In relation to this submission I find that there was no dispute that the property in the account passed to Mr Malcolm Smith when the deceased died; there is no evidence that he held the account as a nominee for the deceased. However there was also no dispute that the value of the account formed part of the deceased's estate for inheritance tax purposes when she died even though the value passed directly to Mr Malcolm Smith and was not one of the assets which vested in her personal representatives to be dealt with in accordance with her Will. The inclusion of this asset as part of the deceased's estate will have given rise to a tax liability attributable to the property received by Mr Kevin Smith that was not wholly discharged by the executors and he remains liable for tax to that extent. I find that the property in the building society account was settled property for the reasons set out below in relation to the appeal of Mrs Sandra Smith and any adjustments necessary to the Notice addressed to Mr Kevin Smith should be made in addition to the adjustments it was agreed at the hearing should be made. 
Mrs Sandra Smith 
43.	The question raised by Mrs Sandra Smith as executor was whether she was liable for the tax attributable to the value of that account; she only avoided liability to that extent if the property was settled property immediately before the deceased's death. 
44.	If the property in that account was settled property the tax attributable to it is not the liability of the executors. If the property in the account was not settled property then the executors would be liable for it even though it passed to Mr Malcolm Smith by survivorship and not under the terms of her Will. Subject to the terms of that Will and because the account never vested in the executors section 211(3) might apply and give them a right to be repaid any tax paid by them which is attributable to its value. 
45.	Even if it was settled property, the executors would have a liability for the additional tax due as a result of the inclusion of the building society account in the taxable estate of the deceased because there is no argument that the value of the account formed part of the estate of the deceased and was subject to inheritance tax when she died and the existence of the account - even if it was settled property - would increase the tax attributable to the property in the sole name of the deceased beyond what it would have been if the account was not part of the taxable estate. 
46.	There is no doubt that Mrs Sandra Smith's liability would be less if the property in the building society account was settled property. It was agreed at the oral hearing that the Respondents would be permitted to make submissions on the question whether the property in the Halifax account might be settled property. I received submissions on this question on 14 November 2008 and a reply to those submissions from Mr Malcolm Smith and Mrs Sandra Smith by letters received at the beginning of December 2008. 
47.	Mr Ryder submitted that because it was a mother who made her son the holder of the account there was a rebuttable presumption of advancement and that the presumption was not rebutted; if it had been rebutted, he considered that there would have been a beneficial joint tenancy but that in either case the value of the account formed part of the deceased's estate for inheritance tax purposes; in fact there seems to have been no suggestion that otherwise was the case. 
48.	Mr Ryder referred the Tribunal to paragraphs 9-73 to 9-78 of the Seventeenth Edition of Lewin on trusts. These paragraphs are part of a section dealing with the concept of the resulting trust. A resulting trust can arise where a person puts property into the joint names of himself and another in which case the property is held for the original sole owner. A resulting trust will not arise if the original owner intends to benefit the joint owner – in certain circumstances this is referred to as the presumption of advancement. Mr Ryder submitted that, Lewin considered the legal character of this type of advancement was unclear. Lewin referred to several authorities on this question and Mr Ryder refers particularly to the case of Re Figgis [1969] 1 Ch 123 where Megarry J suggested that the correct analysis was that there is a immediate gift of a fluctuating and defeasible asset consisting of the chose in action for the time being constituting the balance of the account. Mr Ryder submitted that no trust arises because the gift is of a fluctuating and defeasible amount not falling within any of the categories specified in section 43(2)(a) to (c) IHTA (the definition of settled property for the purposes of inheritance tax) and referred to the Special Commissioners' decision in Sillars v. IRC [2004] STC (SCD) 180 where it was said at paragraph 13 that "the joint account was plainly not settled property". He concluded that the property formed part of the deceased's estate for the purposes of section 5 and that Mrs Sandra Smith is liable for the tax attributable to it as personal representative. 
49.	Mr Ryder referred to the consequences he believed would follow if (which he suggests is not the case) there is a presumed joint tenancy because the presumption of advancement was rebutted. In such a case there would be a gift with reservation as described in Sillars and Mrs Sandra Smith would be liable as personal representative by reason of section 200(1)(a) and section 204(9) but limited to the assets received which he says is in this case is none. I find the last statement puzzling since Mrs Sandra Smith did receive considerable assets on the death of the deceased including the house. Section 204(9) does deal particularly with a personal representative's liability for tax attributable to property forming part of the deceased's estate only as a result of the gift with reservation provisions but mainly in relation to the time before which liability cannot arise (which in this case has passed) and otherwise refers back to the general provisions of section 200(4) which will not assist Mrs Sandra Smith since the assets she has received in her administration of the estate exceeds even the greatest liability it is suggested might arise as a result of this account being added to the value of the estate. 
50.	The question is whether the fact I have found which is that in this case it was agreed the deceased would be entitled to income and that Mr Malcolm Smith would be entitled to a constant amount of capital when she died leads to a conclusion different from the one suggested by Mr Ryder. 
51.	I agree with Mr Ryder that the transfer of property (including a bank account) into joint names does give rise to a resulting trust in certain circumstances so that the property is held for the person who provided the funds. I also agree that this is not always the case and the presumption of advancement (i.e. the presumption that the provider of funds intended to benefit another person even though he did not say so) can displace the resulting trust. But it is also the case that property put into joint names may be the subject of an express trust. To the extent that the property is the subject of an express trust a resulting trust does not arise (because the express trust deals with the terms on which the property is held and in such a case it is also unnecessary to consider whether a resulting trust is displaced because of the presumption of advancement. If there is an express trust, the terms of that trust apply and a resulting trust arises only to the extent that the express trust does not deal fully with the ownership of the property. I agree with Mr Ryder's analysis of what the position would be if there was no express trust but he only deals with the question whether there is an express trust in passing with his reference to the case of Sillars where the Special Commissioner found that there was no express trust. The facts in the case of Sillars are different from the fact in this case. In Sillars the Appellants argued that the deceased had intended an immediate and quantifiable gift to her joint account holders when she transferred a bank account into joint names. No such argument is put forward in this case. 
52.	There is no written evidence of the terms on which the joint account was to be held. However, an express trust need not be made in writing in these circumstances. I have found as fact that Mr Malcolm Smith would have felt unable to draw money for his own use while the deceased was alive and that the deceased would also have felt unable to do so because of the understanding that the capital was to pass to Mr Malcolm Smith when she died. I also accept that both account holders considered that the interest earned in respect of the account belonged without question to the deceased whilst she was alive and it was transferred automatically to her without fail and apparently without regard to whether she needed it or not. The arrangements were very simple. During the life of the deceased she was entitled to the income and after she died Mr Malcolm Smith was entitled to the capital. I conclude that there was an express trust of the property in the account; the property was held for the deceased and then for Mr Malcolm Smith in a manner that falls within the definition of "settlement" in section 43(1)(a) IHTA which includes "property held for persons in succession". Since the deceased was entitled to the income from the property she was beneficially entitled to an interest in possession in settled property and therefore was beneficially entitled to the property itself; as a person's estate is the of all the property to which she is beneficially entitled (section 5) the value of the property in the account was part of her taxable estate when she died. The property was settled property and the person liable for the tax attributable to it is Mr Malcolm Smith in his capacity both as trustee and recipient of it. Undoubtedly the existence of the account will make the executors in their capacity as such to be liable for additional tax because of the tax attributable to the property that was not settled increases as a result of including the value of the account in the deceased's estate for inheritance tax purposes but they do not have a liability for the tax attributable to the value of the settled property in their capacity as such. 
53.	Mrs Sandra Smith is not liable, as executor, for tax attributable to the value of the building society account and to that extent I allow her appeal and otherwise confirm the Determination appealed against. 
Mr Malcolm Smith 
54.	Mr Smith submitted that there was a trust in relation to the property in the building society account and for the reasons set out above in relation to Mrs Sandra Smith's appeal I agree with that submission. 
55.	Whilst this finding may affect Mr Malcolm Smith in his capacity as executor he is also liable for the tax attributable to it both as trustee of the settled property and as recipient of the property; he is also liable for the tax attributable to the property he has received as beneficiary of the estate. 
56.	I dismiss his appeal except in the unlikely event his liability is reduced by the finding that the property in the building society account is settled property and otherwise confirm the Determination appealed against.

JUDITH POWELL
SPECIAL COMMISSIONER

RELEASED: 18 March 2009

SC 3137/2008
SC 3138/2008
SC 3139/2008