Negotiable IHT - What price a promise?

In certain circumstances it is possible to negotiate the amount of inheritance tax (IHT) that is due, so long as the situation is one that is recognised by the HMRC. In the on negotiable IHT, reference was made to specific examples where HMRC considers that a negotiated settlement may be appropriate. The penultimate example on page 09072 of the inheritance tax manual (IHTM), also referred to in that article, shows an example of 'equitable estoppel'.

The term equitable estoppel may mean very little to many advisers but in practice it occurs frequently. Recognising this situation is important because it can mean a substantial reduction in the IHT charge.

So what is equitable estoppel? At its very basic level it has three main components: a promise by A to B; reliance by B on that promise by A; and detriment suffered by B as a result of that reliance.

Legal doctrines

Two relevant doctrines are at play in the realm of equitable estoppel: proprietary estoppel and constructive trusts. While case law and academic writers distinguish between the two, there is an increasing tendency for the doctrines effectively to merge into one.

is an example of equitable estoppel, taking in the three components of assurance, reliance on that assurance and finally detriment. While , on the other hand, is best described as a constructive trust, where a clear agreement has been reached and one party has acted in reliance on that agreement to his own detriment. From the time that the children in Example 2 spent their money the father became a constructive bare trustee for his two children.

The law is complex and still developing as the legal significance of different sets of circumstances are decided by the courts. As each new case is decided, the facts are analysed by lawyers and principles presented from those facts. At a general level courts look to do justice where an injustice has occurred and it would be unfair to allow that injustice to continue without remedy.

The latest case on this subject is Thorner v Curtis 2009 (House of Lords, 26 March 2009). In this case a farmer, Peter Thorner, had led his cousin's son, David Curtis, to believe that, on Peter's death, David would inherit the farm. David worked on the farm for no remuneration and over the years after hints were dropped and action taken by Peter, had a firm belief that the farm would be his on Peter's death. Peter died without a will and under the intestacy provisions the farm went elsewhere.

The evidence was analysed by the courts and, on the particular facts of the case, the court that first heard the case redirected the farm to David. But this decision was revised in the Court of Appeal, saying that "the statement made implicitly...did not amount to a clear and unequivocal representation intended to be relied upon by David or which it was reasonable for him to take as intended to be relied on by him".

When the case went to the House of Lords, that decision was reversed. The headline in the Times read, "Oblique assurances create proprietary estoppel".