The High Court has recently ruled in a case determining the effect of a nil rate band legacy under a Will. Loring v Woodland Trust [2013] EWHC 4400 Ch provides a useful first decision on interpreting a clause giving a nil rate band legacy where the deceased also had the benefit of an unused transferable nil rate band from her late husband.

The clause in question in the Will provided that ‘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 as shall survive me.’ The clause then went on to pass this legacy to such of the grandchildren of the deceased. The residue of her estate was then to pass to the charitable beneficiary, The Woodland Trust.

The net value of the Testatrix’ estate was £680,805.

The issue that arose was that the death of the Testatrix occurred following the introduction of the transferable nil rate band in October 2007. The Testatrix’ husband had died in 1984 with a nil rate band that was entirely unused. As such, the executors of the Testatrix were able to elect to apply such of his unused band to increase the nil rate band of the Testatrix from £325,000 to £650,000.

The grandchildren of the Testatrix as the claimants in this case therefore contended that their legacy was equal to £650,000 and not the single nil rate band of the testatrix of £325,000. The effect of this was that the residue passing to The Woodland Trust was either £30,805 or £355,805.

A question of construction therefore arose. It was ruled that as the words were not ambiguous or unclear that extrinsic evidence was not admissible to help interpret the clause. Words had to be given their ordinary meaning. The High Court therefore held in favour of the claimants that the clause in the Will should be construed to include the enhanced value of the nil rate band.

The decision in this case is in itself unsurprising but it does highlight the importance of reviewing the effects of nil rate band gifts further to the introduction of the transferable nil rate band in order to achieve that such gifts accurately reflect the intentions of the testator. As can be seen, the consequences can otherwise be significant.