The recent case of McKelvey v HMRC SpC 694 was concerned with the exemption under Section 11 IHTA 1984 for dispositions for maintenance of the family and dependents.
A daughter lived with and cared for her widowed mother. She was diagnosed with a terminal illness and realised that she would need to make provision for her mother to pay for nursing care after her own death. Accordingly, the daughter transferred properties to her mother specifically so that they could be sold to pay for nursing costs and claimed that they were exempt transfers within Section 11(3) IHTA 1984, which reads:
“A disposition is not a transfer of value if it was made in favour of a dependent relative of the person making the disposition and is a reasonable provision for his care or maintenance”.
HMRC accepted that gifts of this kind could be exempt, but in this case the mother refused to move into residential accommodation and, in fact, the properties did not need to be sold for this purpose. Accordingly, HMRC claimed that no part of the value of the properties had been used for the mother’s care and therefore the transfers could not have amounted to reasonable provision for that care; no provision was, in fact, required.
The Special Commissioners decided that the stance of HMRC was too harsh. The meaning of reasonable provision in this context was an objective standard and it was clear that at the time the gifts were made the mother would need paid care. The deceased’s decision to make the gifts for the purpose of providing funds for her mother’s future care was reasonable.
HMRC then argued that even if that were the case, the value of the properties exceeded a reasonable amount and therefore an apportionment was necessary to disallow the excess. Accordingly, some calculations were made (of spurious accuracy in my view – but no matter) suggesting that the mother’s care would have been needed for 5.5 years at a cost of £21,000 per annum plus a further £25,000 to cover the contingency of her admission to a home. The value of the properties exceeded this total by £28,500 – and that amount was therefore ineligible for the exemption and was a chargeable transfer.
It is disappointing that the Special Commissioners chose to be so precise when the grounds for such precision simply did not exist. What if the paid nursing care had been required for 5.75 years and the costs had gone up during that period? The figures would be completely different. However, having regard to the case of Phizackerley SpC688, the executors may have been happy with anything because, in that case, the Special Commissioner acknowledged that Section 11 was wide enough to cover the transfer of a house but only if it relieved the recipient from income expenditure – for example, on rent. In that case the transfer was not considered to be reasonable maintenance for the other party; it was to give the other party security and fell outside Section 11 on those grounds.