IHT Trusts - threat to non-working spouses

The weekend of 14th April 2007 saw a flurry of press reports and comments on a perverse ruling by the Revenue Tax Commissioners effectively disallowing a standard discretionary IHT trust (funded in part by a severed share of the family home) on the basis that a non-working spouse had not contributed materially to the purchase of the property.

From the Sunday and daily Times alone, here are three commentaries on the case:

    http://business.timesonline.co.uk/tol/business/money/tax/article1654077.ece

    http://business.timesonline.co.uk/tol/business/money/investment/article1654123.ece

    http://business.timesonline.co.uk/tol/business/money/tax/article1660233.ece

James Kessler QC represented the Phizackerley family and as the leading expert on IHT mitigation it seems unlikely that the case could have been more persuasively presented. The issues raised include retrospective rulings (yet again), possible contravention of equal opportunities legislation and and obvious disregard of case law with respect to settlements for divorce, pensions, etc.

The Phizackerley family do not intend to appeal this ruling but hopefully other institutions will exert pressure and influence. As things stand at the moment the standard IHT trust arrangement will fail if a non-working spouse is the first to die. Unless the decision is somehow reversed you need to warn clients that their IHT trust could fail in the circumstances above.

The full report of the ruling is available at:

    http://www.bailii.org/uk/cases/UKSC/2007/SPC00591.html