The National Gallery has permanently acquired three 18th-century artworks, including a pastel known to be Jean-Étienne Liotard’s greatest artistic accomplishment. These are in place of £10m inheritance tax.

The Lavergne Family Breakfast (1754), which the gallery has held on loan since October 2018, depicts a delicate family moment. In the scene captured, an obliging mother holds a saucer steady for her curler-adorned daughter, as she dips a biscuit into coffee.

The piece of art was the property of city banker George Pinto, until a car accident claimed his life in 2018 at age 29. The acquisition is part of Acceptance in Lieu (AIL), a UK scheme which helps families slash tax bills.

According to the gallery, the still life aspects of the work had been completed with remarkable degrees of care. The work includes unusual layers of thick wet pastel, creating an illusion of reflection on the Chinese Porclain and metal coffee pot.

Liotard was among the 18th century’s most prominent pastellists. Lavergne Family Breakfast was his most ambitious artistic endeavour and is deemed to be his masterpiece. Purchased in 1755 by Viscount Dungannon, his most prestigious customer, the piece has stayed in the UK until today.

The other two pieces are Thomas Gainsborough’s portrait of Margaret Gainsborough holding a theorbo (about 1777), and Thomas Lawrence’s portrait of the Hon Peniston Lamb (about 1790), settling £1.1m and £146,000 respectively.

The gallery described the Gainsborough as a notable example of his later achievements. “In its vigour and bravura manner, as well as its intimacy, it reveals a forward-looking, almost modern, standpoint to Gainsborough’s late portraiture.”

A patron of the National Gallery and a trustee of the Wallace Collection, Pinto maintained an art collection at his homes in Knightsbridge and Kent. These three pieces were included in that collection.

Pinto was a director of the merchant bank Kleinwort Benson, and had a reputation among his colleagues for his brightness and delightful eccentricity. According to his obituaries, he would arrive at the office towards midday, work late into the evening reviewing the small intricacies in complex legal documents in great detail. His evenings were spent usually at the Portland Club, playing bridge into the early hours.

He was also a passionate golf player who generally preferred playing on his own. The Times records an incident in which Pinto encountered a couple in flagrante in a bunker at Royal St George’s in Sandwich, Kent. In response, he asked “Are you members?”

The AIL scheme is part of Lloyd George’s 1910 “people’s budget” to encourage individuals to leave exceptional cultural objects in the nation’s hands.  With treasures available at less than the open market value, the nation has amassed over £330 million worth of treasures in the last decade

The scheme is also designed to benefit the taxpayer, who is enabled to mitigate tax exposure. Put simply, the property accepted substitutes for an amount of tax due at a “special price”. The net market value after the deduction of inheritance tax, along with a “douceur” (sweetener), represents the price. This douceur is a percentage of the notional inheritance tax value – 25% for objects, and 10% for land and buildings. For example, if an object worth £100,000 is offered, the notional inheritance tax of £40,000 is deducted. This leaves its net open market value at £60,000. Next, the douceur of £10,000 (25% of £40,000) is added to this value.  The object is now sold to the nation for £70,000 . Had the item been sold on the open market with inheritance tax, the value would have been 17 % lower.

While appearing as a win-win for the nation and taxpayer, The AIL scheme presents executors using it with several issues. For example, one of the key considerations is the valuation of the item on which AIL is calculated. This entails consulting with independent experts and negotiating the basis of the settlement with the institution interested in acquiring the object. If the executor is being assisted by a negotiation expert, all parties must be clear regarding the expert’s terms. These include the extent of their authority to act on the executor’s behalf. They also include the basis of their fee.

Executors also face issues arising from the estate. For example, a residuary beneficiary may wish to inherit a particular piece of art from the estate, despite the potential tax disadvantages. Furthermore, the land that the executors intend to offer in lieu under the scheme, may have been promised by the deceased to another person. This may have been relied on by that person to their detriment, activating the doctrine of “proprietary estoppel”. Consequently, the land may now be able to pass outside of the deceased’s person Will. If this would happen the land could not be given in lieu.

In October 2016, John Scarle, 79, and Ann Scarle, 69, both died from hypothermia at their home in Leigh-on-Sea, Essex. Their bodies were discovered when police were called on October 11^th. The last time anyone had seen either was when a neighbour spoke to Mr. Scarle on October 3^rd or 4^th.

They were each survived by a child from a previous marriage and left behind a £300,000 property.

Unfortunately, the couple had not drafted Wills, leaving the decision on which daughter should inherit the house to the rules of intestacy.

The Scarles jointly owned the home, meaning if one had died first, the surviving partner would have inherited the whole house. Once they passed on, their child would have been the automatic beneficiary to their estate.

However, with uncertainty over the circumstances of the Scarles’ deaths, the step-sisters have asked a judge to rule on whose parent died first – and therefore who gets the house.

Scarle vs. Scarle

As reported in the Evening Standard, Mr. Scarle’s daughter, Anna Winter, believes Mrs. Scarle died first – based on the condition of her body when the police arrived on the scene.

This would mean that Mr. Scarle briefly inherited his wife’s share of their home, taking ownership of the whole property, and making his daughter the sole beneficiary.

However, Mrs. Scarle’s daughter, Anna Winter, says there isn’t enough evidence to determine who died first.

In that case, under the Law of Property Act 1925, it would be presumed that the older Mr. Scarle died first, putting Ms. Winter in line to inherit the house.

The question is whether the police report proves beyond reasonable doubt that Mrs. Scarle died first, or whether there’s room for interpretation.

The importance of writing a Will

The tragedy of the story is that if a Will was in place, there would be no need for the step-sisters to battle in court.

As Director of The Probate Practice Joel Weitzman puts it, “This case demonstrates the importance of having a Will. The article mentions that the house was purchased using funds provided by Mrs Scarle but without a Will it is unknown what the couple’s intentions for the house were.

They may have been aware that on the first death it would go to the other and possibly the survivor would worry about a Will at that stage. What is certain is that the few hundred pounds they ‘saved’ by not writing Wills will be dwarfed by the legal costs of this dispute.”

Drafting a Will can help to avoid costly legal disputes for your loved ones. For help drafting yours or help with any other probate issue contact Joel Weitzman at j.weitzman@probate-practice.co.uk.

This issue comes as higher probate fees are soon to be introduced, with many people concerned that the new system will not be able to keep up as people rush to apply before the fee hike.

Teething problems causing delays

Previously all probate applications have been assessed manually. The new system was intended to streamline this process, making things quicker and easier for bereaved families. Around 30% of probate applications are now made online.

There appear to be two causes to the delays: Firstly, there is a rush to apply for probate before higher fees are introduced, meaning the system is dealing with more applications. Secondly, the error rate for applications has increased to 74%. When an application for probate is submitted with inaccuracies it cannot be used, so the applicant must start afresh at the back of the queue.

Although the delays are mostly due to simple teething problems, they are having a real impact on grieving families.

Many people rely on selling property to pay inheritance tax bills. Faced with an unexpected delay, families can find themselves in breach of contract, unable to legally transfer the property until probate is granted. In one such case, cited by The Times, one family became liable for a £20,000 fine issued by the Dutch government.

Understandably, some property lawyers are advising people to delay property deals until they are certain they have probate.

Concerns over automated will verification

As part of the probate process overhaul verification of wills is being automated, delegating the task of detecting falsified or altered wills to computers.

Critics point to the high error rate of the new online application system and worry that the private bulk scanning firm Exela won’t be able to match the levels of scrutiny currently used by experienced civil servants.

In response, the HM Courts and Tribunal spokesperson said: “The validity of the will is still checked by HM Courts and Tribunal Service and the added counter measures including holograms, digital seals, and digital signatures make cheating the system even harder.”

In the meantime, inheritance professionals are recommending people with high value or complex estates continue to seek guidance from probate specialists.

Speaking earlier this week Nyman Libson Paul’s Joel Weitzman said “The delays are very frustrating for Executors of Wills and beneficiaries. Many people rely on funds from property sales to pay Inheritance Tax and they can’t sell the property until probate has been granted. If Inheritance Tax is paid late interest is charged”.

We can help you get peace of mind at a difficult time. Find out more about our probate services.

Canada Life found that 70% of those surveyed did not know the standard nil-rate band threshold, which currently sits at £325,000.

55% of those questioned do not know the rate at which assets above their available nil-rate band are taxed, the data also revealed.

Meanwhile, an additional 38% do not believe that their main home is liable for IHT.

Canada Life has warned that many families in the UK could face ‘unexpectedly high’ tax bills as a result.

‘There is a disturbing lack of knowledge which will undoubtedly translate into unnecessarily high inheritance tax bills,’ said Karen Stacey, Head of Distribution Services at Canada Life.

‘Unless people learn more about taxes and actively plan the future of their estate, the government is in line for a large, ongoing and often unnecessary windfall.’

We can help you to plan to minimise the IHT due on your estate – please contact us for further advice.

In a letter to Angela Knight, Chair of the OTS, and its Tax Director, Paul Morton, the Chancellor acknowledged that the existing IHT regime is ‘particularly complex’.

He stated: ‘I would be most interested to hear any proposals you may have for simplification, to ensure that the system is fit for purpose and makes the experience of those who interact with it as smooth as possible.’

Mr Hammond suggested that the OTS’s review should focus on technical and administrative issues surrounding the tax, alongside practical issues related to estate planning and disclosure.

The review should also examine how existing gifts rules interact with the IHT system, and look at whether the current rules cause taxpayers to rethink their decisions in regard to transfers and investments, said the Chancellor in his letter.

IHT is currently charged at 40% on the proportion of an individual’s estate exceeding the ‘nil-rate band’ of £325,000. The residence nil-rate band (RNRB) also applies in addition to the nil-rate band, meaning that a family home can be passed wholly or partially tax-free on death to direct descendants, such as a child, grandchild, step-child, adopted child or fostered child.

A scoping document for the review into IHT will be published ‘in due course’, the OTS said.

In the pre-internet age, it was easy for people to leave their collection of progressive rock albums to their nearest and dearest – those vinyl discs had a physical presence and could be listed in wills under personal possessions. But now – well, it’s complicated.

Remember back in 2012 the stories reporting that Bruce Willis was preparing to sue Apple over the right to leave his iTunes collection to his daughters? Okay that turned out to be untrue but it does highlight the problem. Buying electronic media doesn’t give you the same rights as buying tangible assets – most digital providers are only selling you a lifetime licence to use those files. And when your lifetime comes to an end, that’s that.

Of course one way round the problem is simply to give those close to you the log-ins and passwords to your social media accounts. And the terms and conditions set out by some digital companies allow a film library or play list to be accessed by several separate devices through the same password. Or you can talk to your will writing professional about listing those passwords in your will with instructions on who to give them to. There are also companies like www.passwordbox.com that will store passwords in a ‘Legacy Locker’ for a nominated ‘digital heir’ should the worst happen.

Facebook responded to the confusion by, a couple of years ago, launching a service that memorialises the account of a deceased person so, if a family member alerts the company to someone’s passing the account will be locked and the strap-line ‘Remembering’ added to the person’s profile. Also, if you nominate a ‘Legacy Contact’ with Facebook that person will have access to your account and be able to download all your pictures and posts should you die.

But as far as Pokémon goes its bad news – the service agreement that you signed when downloading the game granted you a ‘limited non-exclusive, non-transferable, non-sub-licensable license’ meaning that you can’t pass your captures on to anyone. So, sadly, when you go to the grave, your Pokémon go with you.

Presently an application fee of £215 is made payable to HM Courts and Tribunals Service on all estates over £5,000.

Under new rules proposed by the government, the system of probate fees would change, to one based on the value of the deceased’s estate. In Scotland, the equivalent Confirmation process continues with a flat rate fee for eligible estates (currently £225).

Estates worth more than £50,000 will face probate fees which rise as the value of the estate increases.

I/We believe this is an unfair form of tax for ordinary families.  With the increase in house prices many estates will now be subject to the proposed increase in fees. The death of a loved one can be an expensive process as it is, with funeral costs to pay upfront prior to the estate being distributed. For families to have to pay this additional fee adds to their burden, both emotionally and financially. I/we would call for the Government to rethink these proposed probate fee increases.

To find out more about the increase in probate fees, and what inheritance tax your beneficiaries may be liable for, please contact us.

Right now everything seems uncertain and so with stock markets falling, the political class in turmoil and unable to help and significant changes occurring what certainties can we hold on to?

Well its unlikely to surprise you that as will writers and estate planners we are going to say that the only certainty is life is sadly death, however that is the reality we all face.

Whether the markets are up or down or whoever is the Prime Minister there is no excuse for not properly considering what should happen when you die and leaving your relatives unable to know your wishes or potentially not receiving what you might want them to receive.

Whilst you might be putting off buying a new car or changing jobs don’t put off making a will.  Life is short and the consequences of not addressing this can range from making things difficult for your relatives right the way through to the wrong people inheriting your estate.

Please contact us if you would like to talk through your options and we can help you create some certainty in a changing world.

– if you receive a large sum of cash

– if a close family member dies

– upon marriage

– upon retirement

– the birth of a child

– following a divorce

See our piece on the importance of writing a will

Important items for business partners to consider when writing their wills are:

Would your business be able to continue whilst one or more director’s estates go through the probate process?

Would any relevant remaining directors be happy to run the business with a deceased director’s next of kin?

What would be the process for buying a business partner or director’s family out?

Do your wills make the most of the tax breaks available to the business?