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Nov. 21, 2014

Will clause construed as including transferable nil rate band (Court of Appeal)

The Court of Appeal has upheld a High Court ruling that a will clause giving a sum equal to the testator’s unused nil rate band for inheritance tax at the date of her death was to be construed as including her husband’s unused transferable nil rate band (The Woodland Trust v Loring and others [2014] EWCA Civ 1314).

The Court of Appeal unanimously upheld a High Court ruling that a will clause giving a sum equal to the testator’s unused nil rate band for inheritance tax (IHT) at the date of her death was to be construed as including her husband’s unused transferable nil rate band. Accordingly, the legacy given under the clause passed the sum of £650,000 to her children and grandchildren.

While noting that the issues raised by the appeal were not easy, the court had to take note of the implicit purpose of the will which was to give as much as possible to the testator’s family without incurring IHT and give the rest to charity. Two of the judges noted that the strongest argument put forward by the appellant, the Woodland Trust, was that the testator could not have intended the exact extent of the benefit passing by the clause to depend on whether or not her personal representatives elected to transfer her husband’s unused nil rate band (a mechanism that was not available at the time she had executed her will). Given that the Court of Appeal judges found it hard to reach the decision they did (with one judge admitting that he had first decided in favour of the Woodland Trust and then changed his mind), the Woodland Trust may seek leave to appeal to the Supreme Court.