£1.2m inheritance tax ‘mistake’ set aside to save historic estate

The High Court has reversed a decision to pass a life interest in £4.4 million worth of estate properties from mother to daughter to avoid paying inheritance tax, after the “grave and unintended” mistake resulted in a £1.2 million tax bill.

The court heard that the ancestral estate of the Fortescue family, the Grade II-listed Boconnoc Estate in Cornwall (pictured), had been “the subject of careful arrangement in order to create a lasting legacy”.

In 2000, Elizabeth Fortescue and her husband Anthony embarked on a 12-year multi million-pound renovation project to restore the main manor house of the estate and preserve it for future generations as a luxury wedding venue.

Following Anthony’s death in 2015, Elizabeth inherited a life interest in the trusts in which the family estate is held. After taking advice in 2017, she attempted to release her interest in £4.4 million worth of estate properties to one of her daughters, Claire, in a way that would avoid any inheritance tax so long as Elizabeth survived for more than seven years.

Despite having been given correct tax planning advice initially, the court heard that subsequent errors in the process resulted in a tax bill of £1.2 million.

Mrs Fortescue’s barrister Oliver Conolly told Deputy Master Joanna Lampert: “It’s crystal clear this was a clear mistake. This was conscious thought process that this was an exempt transfer and that was clearly mistaken.

“There’s no way in which this can be seen as artificial tax avoidance. This is plain vanilla tax mitigation gone wrong.

“This is an estate which has been in the family for a long time. A huge amount of time and effort has been spent by Elizabeth and her late husband restoring the historic building and putting it on a stable footing. The restoration of the main manor house took 12 years

“This is not a trust which is swimming in cash.

“It is Elizabeth who made the mistake. If she had known the effect, she would never have done it.”

Saying the £1.2 million bill threatened the future of the estate, the barrister told the judge that “to pay £1.2 million in tax, the trusts would have to sell properties”.

Allowing Elizabeth’s claim, the judge said the mistake had created “an unintended tax consequence”.

“Elizabeth was advised that if she released her interest in [the trusts] it would be potentially exempt [from IHT] after seven years,” she said.

“It appears that the advice was right, but that the process used to give effect to it was both wrong and unnecessary.

“She believed that no IHT would be payable on the released properties provided she survived seven years. That belief proved to be mistaken. Instead, they gave rise to a 20% tax charge.”

She said the error was “particularly grave because the estate has been the subject of careful arrangement in order to create a lasting legacy.

“It would be difficult for the estate to meet the IHT bill whilst protecting the future of the estate,” said the judge, concluding that it would be “unconscionable” for the error not to be rectified.

“I shall make an order that the deeds of release be set aside and that the deeds of advancement are invalid.”

Claire Fortescue, who along with the trustees of the family trusts were the defendants in the action, did not oppose the making of the orders sought by Elizabeth.

Image courtesy of Champion News