The Woodland Trust v Loring & Ors

A testamentary gift defined by reference to the testator’s unused inheritance-tax nil-rate band at death includes a statutory increase which takes effect retrospectively at death. A valid claim under section 8A(3) of the Inheritance Tax Act 1984 increases the survivor’s nil-rate band; it does not transfer the deceased spouse’s band. The words “my”, “unused” and “at the date of my death” do not exclude the increase. The expression “for Inheritance Tax” can encompass the band used to calculate tax on the survivor’s estate. The will must be construed in a manner consistent with its wording and purposes when later statutory changes occur.

Valerie Smith’s will gave specified family members a sum equal to her unused inheritance-tax nil-rate band at death and gave the residue to the Woodland Trust. Her executors made a claim under section 8A of the Inheritance Tax Act 1984, increasing the applicable band from £325,000 to £650,000. On a construction summons, Asplin J held in favour of the family beneficiaries: [2013] EWHC 4400 (Ch). The Trust appealed, arguing that clause 5 fixed the gift at £325,000 and that the statutory claim affected tax liability only. The central issue was whether the statutory increase also enlarged the testamentary gift.

1. Disposition. The appeal was dismissed. Sir Colin Rimer upheld the construction adopted below. Lord Justice Christopher Clarke reached the same conclusion, and Lord Justice Lewison agreed while giving additional reasoning.
2. Statutory effect. A valid claim under section 8A of the Inheritance Tax Act 1984 operates by treating the nil-rate band maximum at the survivor’s death as increased for the purposes of the inheritance-tax charge. It does not transfer the deceased spouse’s unused band to the survivor. In this case the claim increased the band from £325,000 to £650,000 (paras [7], [17]–[20], [33]–[36]).
3. Construction of clause 5. The words referring to the amount of the testatrix’s unused nil-rate band for inheritance tax at the date of death encompassed the statutory increase. The references to “my”, “unused” and the date of death did not require the gift to be limited to the unincreased band. The phrase “for Inheritance Tax” was wide enough to refer to the band applicable in calculating tax on the testatrix’s estate (paras [17]–[18], [20], [38]).
4. The fact that the executors’ claim was discretionary was a powerful consideration, but it did not outweigh the statutory effect and natural construction of the words. The court rejected the argument that the claim could affect tax only and not the interpretation of the gift (paras [16], [18], [39]–[42]).
5. Lewison LJ additionally considered the principles governing interpretation of wills and contracts in changed circumstances, including the purposes and values implicit in the wording. The will’s implicit purpose was to give the family as much as possible without inheritance tax and the balance to charity. That purpose supported including the enhanced band (paras [21]–[24], [37], [43]–[44]).

1. Court of Appeal (Civil Division) — [2014] EWCA Civ 1314: appeal dismissed and the High Court’s construction upheld.
2. High Court (Chancery Division) — [2013] EWHC 4400 (Ch): Asplin J held that the clause 5 gift was £650,000.