Charles Cooper

NIL-RATE BAND LEGACIES AND THE NEW RESIDENCE NIL-RATE BAND

CHARLES COOPER REVIEWS THE CONSEQUENCES FOR NIL-RATE BAND LEGACIES OF THE NEW RESIDENCE NIL-RATE BAND FOR INHERITANCE TAX

Since 09 October 2007 it has been possible to claim, on their death, the unused Inheritance Tax Nil-Rate Band (‘NRB’) of their spouse or civil partner who died before them. This is often referred to as the ‘Transferable Nil-Rate Band’ or ‘TNRB’. By 2014, the Court of Appeal had been asked  to consider whether the wording of a so-called ‘Nil-Rate Band Legacy’ should properly include the TNRB as well. The case was Loring v Woodland Trust [2014] EWCA Civ 1314.

In that case, the relevant part of the NRB legacy read:

                ‘MY TRUSTEES shall set aside out of my residuary estate assets or cash of an aggregate value equal to                        such sum as is at the date of my death the amount of my unused nil-rate band for inheritance tax and to                      hold the same for such of the following…’

The Court of Appeal upheld the first instance decision that the legacy should be calculated so as to include both the unused NRB and the TNRB, even though the legislation had been introduced after execution of the will. Particular reference was made to the wording of s.8A Inheritance Tax Act 1984 as applying to increase the NRB rather than being a separate, additional, NRB.

HMRC has criticised the decision in Loring, in their Inheritance Tax Manual at IHTM43065, on the basis that the clause uses the specific words ‘the amount of my unused nil-rate band’.

From 06 April 2017, however, there is now an additional ‘Residence Nil-Rate Band’ and a ‘Transferable Residence Nil-Rate Band’ to contend with, the legislation for which is set out at ss.8D-8M Inheritance Tax Act 1984. Now, more than ever, caution is advised when drafting or interpreting NRB legacies within a will.

June 2018

 [Charles practised as a Solicitor and Higher Court Advocate before being called to the Bar, and specialises in tax, trusts, wills and probate.]

Pimlico Plumbers Ltd & Mullins v Smith [2018] UKSC 29

In what is likely to be the leading authority on employment status for years to come, the Supreme Court today has dismissed the appeal of Pimlico Plumbers from the Court of Appeal decision that Mr Smith was a worker and not a self-employed contractor.

Mr Smith is a plumber who carried out work for Pimlico between 2005 and 2011. After suffering a heart attack in 2011, Mr Smith claimed to have been unfairly dismissed despite having presented himself as self-employed for VAT and income tax for 6 years. The facts of his engagement are complex, but the dispute between the parties centred around the legal categorisation of Pimlico’s business model. The model presented operatives to clients as working for the business, but at the same time the business internally sought to maintain that there was a legal relationship of self-employed independent contractor rather than employer and employee. The paperwork in this regard was confusing at best. The employment tribunal, EAT and Court of Appeal all reached the decision that Mr Smith was a ‘worker’ rather than a self-employed contractor. Today the Supreme Court judgment upheld that finding.

Whether or not someone is a worker or an employee is largely a matter of fact for the Tribunal to decide. Here Lord Wilson determined that, “the dominant feature of Mr Smith’s contracts with Pimlico was an obligation of personal performance …there were features of the contract which strongly militated against recognition of Pimlico as a client or customer of Mr Smith. Its tight control over him was reflected in its requirements that he should wear the branded Pimlico uniform; drive its branded van, to which Pimlico applied a tracker; carry its identity card; and closely follow the administrative instructions of its control room. The severe terms as to when and how much it was obliged to pay him, on which it relied, betrayed a grip on his economy inconsistent with his being a truly independent contractor.” The substantive claims will now proceed to be heard in the employment tribunal.

Although Charlie Mullins (the owner of Pimlico) prophesies that companies using self-employed contractors now face a ‘tsunami of claims’, this claim is most likely a gross exaggeration. As has always been the case, every individual case will require careful legal analysis of the true nature of the working relationship. The contractual label alone is not enough. The contract may term the relationship as one of self-employed contractor, but the substance of the obligation of personal performance is what counts. Here, there was criticism of “an irrelevant contract, cast in highly confusing terms”, necessitating proper scrutiny of the entire engagement. The famous judgment of Lord Templeman in Street v Mountford [1985] AC 809 comes to mind that “The manufacture of a five pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade.”

Companies routinely engaging self-employed contractors on any sort of routine basis would do well to potentially scrutinise and revise its contracts in light of this judgment. Individuals who feel as though they have been ‘strong armed’ into signing a contract declaring them to be self-employed, despite being heavily controlled by their company, may wish to consider negotiating a clearer and more honest working legal relationship. When it comes to drafting contracts that seek to control an operative whilst describing them as self-employed, the ‘careful choreography’ exercised by Pimlico is not enough to balance such inconsistent objectives. In future, contracts- be they for an employee, worker or self-employed contractor- should really call a spade a spade.

https://www.supremecourt.uk/cases/docs/uksc-2017-0053-judgment.pdf

Andrew Worthley

Solving Family Problems: Evolution or Revolution?

The out-going President of the Family Division, Sir James Munby, recently delivered a compelling lecture in Liverpool, calling for the creation of an enhanced and re-vamped family court with much wider powers to engage with the many difficulties faced by families in society.

With laudable ambition, the President referred to the simplicity of his proposals whilst recognising that the road to achieving them would be long and hard.

“We have somehow to create a one-stop shop in an enhanced re-vamped family court capable of dealing holistically, because it has been given the necessary tools, with all a family’s problems, whatever they may be. More narrowly, dealing holistically with the family court’s traditional concerns with status, relationship breakdown and family finances; more widely, and ultimately more importantly, dealing holistically with all the multiple difficulties and deprivations – economic, social, educational, employment, housing and health (whether physical or mental) – to which so many children and their families are victim. Family justice is surely about something much wider than mere lawyers’ law.”

In his sweeping assessment of the limitations of the current family justice system, the President identified four problems that needed solving.

Firstly, there is the problem that the complex procedures (both statutory and as set out in the Family Procedure Rules 2010) for addressing the three central concerns of family law – status, relationship breakdown and the family’s finances – prevent the family court ever addressing the family’s problems holistically and in a simple ‘one-stop’ process. This fragmentation of the family court’s processes can lead only to delay, added cost and, worst of all, additional stress for all concerned.
Secondly, family courts should be, but for the most part are not, ‘problem-solving’ courts. He pointed to the success of the Family Drug and Alcohol Courts, noting the greater incidence of reunification in cases managed through this problem-solving paradigm.

Thirdly, cases involving families, parents and children are spread across the jurisdictions, so that families from time to time find themselves enmeshed in the various justice systems in England and Wales. In this regard, the President highlighted the different jurisdictions (and avenues of appeal) to decide family cases, criminal cases involving children, mental health issues and issues such as asylum and immigration. Rather then bringing these jurisdictions under one overarching enhanced court, the President considered judicial ‘cross-ticketing’ as a means of bringing expertise and experience to these many and varied jurisdictions.

Fourthly, the President identified a very common frustration in public law proceedings in particular – the family court cannot direct that resources be made available or that services be provided; it can merely seek to persuade. The President argued eloquently for primary legislation, which would give the court the power to direct the provision of services in certain circumstances.

Evolution or revolution? However one characterises the reforms proposed by the President, his assessment of the current state of the family justice system is only one step away from its condemnation as a system not fit for the holistic objective purpose of solving family problems.

Richard Powell