Capital gains tax — Advice — Professional negligence — Claimant beneficially interested in deceased’s estate claiming damages against defendant solicitors — Whether defendants giving negligent advice as to value and treatment of land — Whether negligence resulting in loss — Claims allowed in part
The claimant was beneficially interested in the estate of a deceased who, at his death, owned a landed estate, known as Hulton Land Fund (HLF). The claimant brought two actions for professional negligence against the acting solicitors for the executors and trustees of the deceased’s will. One of the actions concerned a deed of variation of the will; the other concerned the advice given by the defendants in relation to capital gains tax (CGT) liability.
In respect of the CGT claim, the claimant complained, inter alia, that, as a result of the defendants’ negligent advice: (i) low values had been placed on most of the HLF for probate purposes, thereby potentially increasing the chargeable gain for CGT on subsequent disposals of land; (ii) the executors had failed to vest the residuary assets of the estate in themselves as trustees before the death of the deceased’s wife, thus missing the tax-free uplift in base values under section 73(1) of the Taxation of Chargeable Gains Act 1992 on the wife’s death; (iii) the actual sales values had not been substituted for the probate values of three properties that had been sold during the three years following the deceased’s death, as required under section 191(1) of the Inheritance Tax Act 1984; and (iv) the executors had vested the HLF in themselves as trustees before the death of the deceased’s wife, giving rise to a deemed disposal and a charge to CGT on the wife’s death.
Held: The claims were allowed in part.
There were sound reasons for adopting a policy of low probate values. A tax expert had specifically advised that values should be kept as low as possible. If there were no alterations to the will, inheritance tax (IHT) would be paid, in respect of the land, on the death of the deceased’s wife. Low probate values on the deceased’s death would therefore potentially assist in reducing the prospective IHT charge.
It had been reasonable for the executors to retain the residue to meet potential liabilities. It would have been imprudent to vest the residue in themselves as trustees, since the estate remained in administration and the residue had been exhausted. The executors owed duties to the beneficiaries as a whole in order to be in a position to pay debts and liabilities at the least cost.
The defendants had been negligent in failing to consider utilising section 191(1) of the 1984 Act in respect of the sales of the three properties. A reasonably competent solicitor in the circumstances of the present case would have done so. However, the claimant had failed to show that any loss had been caused by the negligence.
Furthermore, the defendants had been negligent in failing to advise the executors against vesting the HLF in themselves as trustees prior to the wife’s death. The court would refer to an enquiry the issue as to whether any, and if so what, loss had been suffered by the executors in consequence.
Robert Ham QC and Paul Emerson (instructed by The Owen Kenny Partnership, of Chichester) appeared for the claimant; Justin Fenwick QC and Alex Hall Taylor (instructed by Pinsents, of Birmingham) appeared for the first defendants; Amanda Hardy (instructed by Brabners Chaffe Street) appeared for the second and third defendants.
Eileen O’Grady, barrister
