Author: Wellers

When it comes to tax matters, there is a tendency for fiscally inexperienced people to simply sign whatever documents their accountants put in front of them. That can be a risky approach but, as a First-tier Tribunal (FTT) ruling showed, there is often an entitlement to place reliance on ostensibly competent professional advice.

The case concerned three former partners in a drain maintenance firm. They had the misfortune to be advised by a small accountancy practice whose principal was subsequently found guilty of cheating the public revenue and jailed. Following the criminal investigation, HM Revenue and Customs (HMRC) formed the view that the firm had underpaid tax in the 2005/6 tax year. On that basis, back demands for substantial sums in Income Tax were raised against the partners.

In upholding their appeal against those demands, the FTT noted that HMRC’s inquiry into the firm’s tax affairs had been inordinately delayed and that memories of relevant events had inevitably faded. Despite the paucity of evidence, it found that the firm’s business was transferred to a company in which the partners held shares on or around 1 April 2005. The partnership thus had no income during the relevant tax year. Late payment penalties were also overturned.

The FTT noted that the partners placed implicit trust in the accountancy practice and, in truth, simply signed any documents put in front of them. Their expertise lay in drainage systems, and they acted wholly responsibly in placing their tax affairs in the hands of the ostensibly competent practice. They were entitled to rely on the practice for the submission of accurate financial information to HMRC and it was no fault of theirs that they had been led by the practice on what amounted to a fiscal frolic.

Delays in surrogacy treatment in England may be long but, as a High Court ruling showed, those who look abroad to fulfil their desire for parenthood may well be placing their own and their children’s legal status at risk.

The case concerned a same-sex couple who lived in Thailand, one of whom was British. Desperate to have a family and faced with long waiting lists in the UK, they resorted to a foreign surrogacy agency which they found online. Eggs donated by a Cambodian woman were fertilised using the British parent’s gametes. A surrogate mother was found in Georgia and she gave birth to twins.

However, the couple’s happiness was marred by, amongst other things, delays in uniting them with the children arising from the COVID-19 pandemic. The children were also born prematurely and required neonatal intensive care. Overall, the couple paid more than $76,000 to the agency and the surrogate mother.

Perhaps the greatest difficulty they faced, however, was a continuing question mark over whether they would be recognised as the children’s legal parents under English law. That depended on whether the requirements concerning surrogacy arrangements contained in the Human Fertilisation and Embryology Act 2008 had been met. The couple applied to the Court for formal parental orders in their favour.

Ruling on the matter, the Court noted that the couple were married and that there was a biological connection between the British parent and the children. Despite his residence abroad, the Court was satisfied that he remained domiciled in this country. The surrogate mother’s written consent to the arrangement was not compromised by money she had received. The requirement to also obtain her husband’s consent was dispensed with because he could not be contacted.

Turning to the financial aspects of the arrangement, the Court found that the money paid by the couple clearly went well beyond expenses reasonably incurred in the surrogacy. The Court had a number of concerns about their conduct but ultimately concluded that the payments should be retrospectively authorised. Overall, the welfare of the children, who were much loved and well cared for by the couple, demanded that parental orders be made.

In its decision, the Court emphasised that parents who engage in surrogacy arrangements, particularly abroad, should have a clear understanding about what is required to secure their legal position in relation to any child born. To do otherwise was to place the future of longed-for children at risk and could be viewed as an abdication of responsibility.

Taking legal advice when making your will is more than likely to reap dividends after you are gone. In one case, a solicitor’s wholly reliable evidence proved decisive in resolving an extraordinarily bitter family inheritance dispute.

By his final will, a man left his residuary estate to the sister of a woman with whom he had lived for many years but who predeceased him. The validity of the will was, however, challenged in court by the woman’s two children. They said that the man had treated them as his sons whilst they were growing up and that he would not have wanted to disinherit them.

Arguing that a previous will, under which they stood to benefit substantially, should be admitted to probate, they asserted that the last will was a product of fraudulent calumny on the sister’s part. They contended that she had poisoned the man’s mind against them by casting dishonest aspersions on their characters.

Ruling on the matter, the High Court comprehensively rejected those allegations. As a result of the behaviour of his partner’s children following her death, the man had formed his own unfavourable views of them and their conduct. The formation of those views was entirely uninfluenced by the sister’s conduct.

In reaching those conclusions, the Court placed heavy reliance on the evidence of a solicitor who helped the man prepare the final will. She had interviewed him on his own and advised him independently. Her account, which the Court accepted in its entirety, was that he knew what he was doing and why he was doing it and that he acted as a free agent when he executed the document. The Court pronounced in favour of the final will and directed its admission to probate.

With many more people running businesses from home in a post-COVID-19 world, the spotlight has inevitably fallen on commonplace restrictions on the use to which domestic premises can lawfully be put. In a case on point, a couple required a tribunal’s authorisation to open a home-based childminding business.

The title deeds to the couple’s home contained two restrictive covenants in common form, the older of them dating back to 1937. Together, they confined the property’s use to that of a private dwelling house and specifically forbade its use for any trade or business. They therefore directly impeded the couple’s proposal to operate an Ofsted-registered childminding business from their home.

Faced with that difficulty, they applied to the First-tier Tribunal (FTT) under Section 84 of the Law of Property Act 1925 to modify the covenants so as to enable them to open their business. They had not sought planning permission to change the use of their home after receiving advice that no such permission was required for a childminding business looking after six or fewer children.

Following a site visit, the FTT expressed concern about traffic and parking issues that might arise from the proposed business use. The couple, however, succeeded in allaying those concerns. Granting the amendments sought, the FTT noted that the character of the area had substantially changed in the many years since the covenants were drafted. It was ultimately satisfied that a small childminding business represented a reasonable use of the property.

In a head-turning decision, the High Court has acknowledged that increased rainfall arising from environmental changes was one cause of excess seepage of water from a landowner’s field into a neighbouring domestic garden.

The garden owner sought an injunction and damages against the landowner, alleging that the increased seepage arose from the landowner’s negligence and amounted to a nuisance. He contended that his garden had, as a result, been transformed into an unkempt carpet of moss and that a number of his trees had died.

Ruling on the matter, the Court found that there had been an increase in the volume of water flowing into the garden from the field. It was damper than it used to be, and ponds tended to form, especially after heavy rainfall. However, the problem was not such as to render the garden waterlogged.

The Court found that the excess water seepage into the garden did not arise from an inefficient drainage system on the landowner’s holding. Rather, it was caused by a combination of the removal of a water-thirsty orchard by the landowner’s predecessor in title and an increase in annual rainfall in the area.

Noting that there should be give and take between occupiers of land, the Court found that the change of use from an orchard to pasture was entirely reasonable. The increased rainfall and the flow of water from higher to lower ground – the garden was at the bottom of a hill – were natural occurrences.

The garden owner’s claim succeeded only in respect of a waterway in the field that had become clogged with vegetation so as to interfere with the operation of his septic tank and soakaway. The landowner was ordered to pay damages equivalent to the costs involved in connecting the tank to the sewerage mains.

Shareholders are obviously liable to pay Income Tax on their dividends, but what if a declared dividend is not – and, in reality, never will be – paid? A tax tribunal pondered that issue in a case concerning an otherwise successful property management company that was saddled with crushing debt servicing costs.

The company was trading well and making good operating profits. Its interest costs in respect of bank loans were, however, so debilitating as to place its business at risk. It was anxious to attract new external equity investors and its sole director took the view that a record of strong dividend declarations would assist in that task.

The company gave a binding undertaking to the bank that it would not make dividend payments to its two shareholders above certain limits. However, with the knowledge of the bank, it formally declared dividends that were well above those limits. The majority of those dividends were never paid, and the relevant funds were instead allocated to inaccessible shareholder accounts with the intention that they would in due course be written back into subsequent company accounts.

HM Revenue and Customs took the view that the shareholders were liable to Income Tax on the declared dividends, as opposed to the much smaller sums that they had actually received. On that basis, back tax demands and late payment penalties, totalling in excess of £60,000, were raised against them.

In upholding their appeal against those demands, the First-tier Tribunal (FTT) noted that the facts of the case were most unusual. It was clear that the shareholders had no immediate right to enforce payment of those parts of the declared dividends that exceeded the agreed limits and that any such payment was deferred until further notice or until mutually agreed.

Had the shareholders been paid dividends beyond the agreed limits, the bank would have been within its rights to suspend all further borrowing and to immediately call in all the company’s indebtedness. In the worst-case scenario, that would have led to a forced sale and foreclosure of the company’s property portfolio.

The FTT concluded that the dividends which were declared, but retained as unpaid and inaccessible, did not give rise to an enforceable right to receive them as income in the relevant tax years or, in the end, at all. The tax demands were overturned and the penalties thereby fell away.

When spouses each make valuable contributions to a long marriage, the general rule is that marital assets should be divided equally in the event of divorce. As an unusual High Court ruling concerning the validity of a French marriage contract showed, however, the sharing principle can be displaced by agreement.

The case concerned a couple who married in France when they were just starting out on their highly successful business careers. Their marriage lasted for over 25 years, yielding three children. Before they tied the knot, however, they signed a French marriage contract which provided that their respective assets would be treated as separate were their marriage to come to an end.

They moved to Britain soon after the wedding and it was here that the wife petitioned for divorce. She asserted that the marital assets should be divided equally between them. The husband, however, pointed to the marriage contract and argued that, by agreement, the sharing principle had no application to the case.

The wife contended that she signed the contract as a necessary stepping-stone to marriage and to give a clear and reassuring message that she was not interested in the husband’s family assets. She said that they pooled their resources during the marriage in line with a shared vision that they would be as one. Her understanding was that the contract merely excluded inherited resources from division.

The Court found, however, that the marriage contract was freely entered into by both wife and husband and that they each had a full appreciation of its implications. The contract was of a type very common in France and had been drafted by the firm of notaries used by the wife’s family.

Nobody had suggested that it was the husband or his family who were pressing for the contract. The wife was extremely intelligent, and the Court had no doubt that the notary would have explained to her the ramifications of the contract in detail. The wife’s claim for financial relief therefore stood to be assessed on the basis of her reasonable needs, rather than the sharing principle.

The Court found that the wife was entitled to exit the marriage with assets worth over £9.4 million, plus her interest in a French property. Her provision amounted to 38.9 per cent of the overall marital assets, which were worth more than £24 million. In the light of the marriage contract and other relevant circumstances, the Court found that the resulting division of assets was correct and appropriate.

When making a will, it is vital to remember your obligations to family members and others who depend upon you financially. As a High Court ruling showed, however, your duty is to make reasonable provision for them – no more.

The case concerned a matriarch who died just short of her 100th birthday. By her will, she directed the sale of her home, which was worth about £875,000. She instructed that the proceeds of sale should be split into six equal parts before being divided, in various proportions, between her six children and six grandchildren.

Her eldest daughter was apportioned 70 per cent of one of the parts. She was also bequeathed one sixth of the modest residue of her mother’s estate. Her inheritance was, overall, worth about £109,000. However, she asserted that the will did not make reasonable provision for her. She launched proceedings under the Inheritance (Provision for Family and Dependants) Act 1975, seeking an increased share of her mother’s estate.

In rejecting her claim, however, the Court found her to be an unsatisfactory witness. Her evidence contained substantially exaggerated statements about the level of care she had provided to her mother in her old age. Having initially asserted that she gave up work at her mother’s request in order to look after her, she subsequently accepted that she did so voluntarily for her own reasons.

Just because her mother had unwillingly provided her with rent-free accommodation for a number of years did not mean that she was under an obligation to do so. Her mother was not responsible for meeting her needs, whether by providing her with somewhere to live or otherwise. She had no greater obligations or responsibilities towards her daughter than towards any of her other children and their families.

The fathers of those who are given up for adoption as babies are often not identified on their birth certificates and that can be a painful barrier to their formation of cultural and family identities in later life. As a High Court ruling showed, however, there is a great deal that the law can do to help them.

The case concerned a woman in her 40s who was born in Portsmouth. Her mother was 18 when she gave birth to her and her father was a Royal Navy engineer who was born in Jamaica. Her father played no part in raising her and her mother was physically, emotionally and financially unable to cope alone. She was seven months old when she was given up for adoption.

She was aged 19 when her father contacted social services, asking to have contact with her. Their relationship started with exchanges of letters and photographs, but face-to-face contact led to the blossoming of a loving father-daughter bond. He fully accepted her as his child, and she was comfortably integrated into his family in Jamaica. His name, however, remained absent from her birth certificate.

Some years after his death, she sought a court order formally recognising him as her father. Her eventual aim was to have her birth certificate amended so as to officially confirm his paternity. Putting the record straight, she said, would benefit her and her two children in that it would establish their Jamaican heritage and ancestry. It would also ease her path to obtaining Jamaican citizenship.

Granting a declaration of parentage under Section 55A of the Family Law Act 1986, the Court noted that DNA testing of her father’s other biological children confirmed that they were her half-siblings to a 99.9375 per cent degree of probability. In the light of that and other evidence, the Court was satisfied to the point of being sure that she had correctly identified her father.

The Court did not itself have the power to amend her birth certificate to include her father’s name. It directed, however, that the Registrar General for Births and Deaths be informed of its decision. Given the declaration of parentage, the relevant amendment should follow without difficulty.

Large houses set amidst rolling acres are an abiding feature of English rural life – but should such properties necessarily be viewed as wholly residential? In answering that question in a landowner’s favour, the First-tier Tribunal (FTT) relieved him of a substantial Stamp Duty Land Tax (SDLT) demand.

The landowner and his wife purchased a house and 39 acres of land for £2.5 million. He paid £114,500 in SDLT on the transaction on the basis that the property was in mixed use. HM Revenue and Customs (HMRC), however, took the view that the property was entirely residential and assessed him for an additional £98,000 in SDLT.

Upholding the landowner’s challenge to that assessment, the FTT noted that 20 acres of the land were fenced off, invisible from the house and leased out for grazing sheep. That arrangement long pre-dated the couple’s purchase of the property. A further 8.5 acres of woodland were managed by the Woodland Trust.

It was somewhat hyperbolic to describe the house as surrounded by its own rolling pasture and indigenous woodland. It was, in truth, a barn conversion, not a large manor house at the heart of a traditional rural estate. Given its character, it was more than adequately served by its 12 adjoining acres, which included a landscaped garden, a lake and various outhouses.

The FTT found that the land occupied under the grazing lease and by the Woodland Trust did not form part of the garden or grounds of the house as defined by Section 116 of the Finance Act 2003. It was, therefore, wrong to treat them as residential property for the purposes of SDLT.