September 2018 saw the case below, reported in full here
Mitigation of tax, particularly taxes of inter-generational effect and even by completely lawful “vanilla” means, is a matter on which there may be a range of views. The Mental Capacity Act does not permit the Court to rely on default positions, assumptions or generalisations in making a decision about whether gifts to effect tax mitigation are in the best interests of a particular protected person. The Court must decide the application on nothing more and nothing less than a case-specific application of section 4.
This concerned tax mitigation for a very wealthy individual who had lost capacity and whether this could be said to be in her best interests, given that the Inheritance Tax liability would be on death, and there would therefore not be of immediate concern to the donor, were she capax.
Argued by David Rees, the criteria to be considered are explored in considerable detail. Since there was sufficient money remaining to cover every conceivable cost the donor could need to pay before death, this was a case not about affordability but whether the court could decide to make a payment on her behalf. The court had to make a balancing exercise and did so, culminating in the court agreeing to the proposed gifts, after weighing those considerations up.
64. Affordability : I agree with the Official Solicitor that, where the court is considering the authorisation of gifts, affordability is a “necessary but not sufficient” consideration. The future needs of the protected person must be considered on a cautious basis, and the level of gifting not such as may put in doubt the donor’s ability to meet those needs. I am satisfied that, even though the gifts proposed in this case are very large, they are amply affordable for JMA. If the parties’ agreement is given effect, she will still have at her disposal funds which are more than sufficient to meet her conceivable needs. That in itself is not however sufficient basis to conclude that making the proposed gifts would be in her best interests. There is no expectation on people who retain capacity to make gifts of their surplus wealth during their lifetime, and nor should there be any expectation that it is in the best interests of persons who lack capacity so to do.
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Default position/assumption : The purpose of the gifts presently under consideration has always openly been stated as tax mitigation. In support of the parties’ agreement Mr Rees referred to a “default position [6] ” and Ms. Haren referred to a “reasonable expectation [7] ” or “assumption [8] ” in favour of such measures. Similarly, I note that the Official Solicitor in Re KGS referred to a “generalisation. [9] ” In my judgment, following the exegesis of Charles J in Watts v. ABC , each of these “runs counter to the underlying rationale and purpose of the MCA and, in particular, of its decision and fact sensitive approach to the application of its best interests test in all the circumstances of a given case.”
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Mitigation of tax, particularly taxes of inter-generational effect and even by completely lawful “vanilla” means, is a matter on which there may be a range of views. The Mental Capacity Act does not permit the Court to rely on default positions, assumptions or generalisations in making a decision about whether gifts to effect tax mitigation are in the best interests of a particular protected person. The Court must decide the application on nothing more and nothing less than a case-specific application of section 4.
Paragraph 67 of the judgment:
The balancing exercise : In my judgment, the factors weighing in favour and against the making of the proposed gifts from JMA’s estate may be summarised thus:
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IN FAVOUR
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AGAINST |
| The recipients of the proposed gifts are those whom JMA has chosen to benefit in the will she made when she had capacity to do so:
· the benefit they will receive has a good prospect of being increased by the effect of tax mitigation but will otherwise be much the same overall whether or not the gifts are made
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JMA had on one occasion expressed a wish that her son should know that the end of financial support from her had come. |
| Management of her property and affairs with a view to tax efficiency is consistent with JMA’s beliefs and values as demonstrated by her actions when she had capacity to manage her financial affairs for herself:
· when she could, she took regular financial advice and made decisions in accordance with that advice to minimise her exposure to lifetime taxes, including strategies with incidental inheritance tax benefits · JMA’s change of circumstances now makes it feasible to consider post-death tax exposure |
JMA’s tax mitigation whilst she had capacity did not extend to post-death taxes save where that was incidental to life-time tax planning intended to address her own needs |
| The proposed gifts are amply affordable and will have no discernible impact on her ability to meet her conceivable needs from her remaining funds. | The proposed gifts reduce JMA’s estate and therefore the funds available to her during her lifetime by approximately 38%. |
| The proposed gifts reflect an agreement reached between the various recipients and with independent representation of JMA herself:
· any further argument is avoided, thereby reducing potential exposure to costs · giving effect to the agreement may have a beneficial effect on family relationships which have been adversely affected by difficult circumstances. |
Wills and the rest 