HMRC no longer reviewing Family Investment Companies
The recent High Court case of Y v Y* has all the hallmarks of a certain popular period drama: inherited wealth built up over generations, landed gentry forced to downsize and the pitfalls of managing a large country estate.
The husband inherited and managed the family estate, which was originally purchased in the 1940s and comprised a Grade II country mansion, a number of staff cottages, residential properties, commercial units, an equestrian centre, a village pub and acres of land and gardens. The parties had been married for 26 years and the wife sought a significant portion of the estate to meet her reasonable long-term needs.
In divorce cases, there is always a dispute over the treatment of inherited assets - with the financially weaker party claiming a share to enable them to re-house or to provide an income fund; and the wealthier spouse seeking to ring fence their inherited assets that have often been built up over generations.
Since the turn of the millennium, family judges have been equipped to invade the sanctity of such inherited wealth in order to reach a fair outcome. However, where there are sufficient matrimonial assets available to meet the parties’ needs, the inheritor will often successfully argue that the inherited family estate is a non-matrimonial asset and so should be protected from division between the parties.
In Y v Y, the couple lived a “unique and extremely high” lifestyle and their contributions to the welfare of the family were “commensurate but equal”. In respect of the wife, the Court found that “her main job was caring for the children and being a social asset [...] she fulfilled her role (as, essentially, the lady of the manor) with aplomb”. However, the husband, through his inheritance, “made an extra positive financial contribution” which merited “full recognition”.
Taking account of the above, the High Court determined that, although the origin of the wealth was on the husband’s side and “the Court should be slow to invade it without good reason”, the wife’s needs could not be met “without recourse to this property”. The Court assessed the wife’s capital requirements and long term income needs and awarded her £8.3 million (32.5% of the total assets of nearly £27 million). This award was said to encompass any right that the wife had to share in the assets.
In cases such as Y v Y, where the majority of the assets are inherited, arguments over matrimonial/non-matrimonial property will be determined by what is a fair assessment of one party’s needs. This will be assessed on a generous basis taking into account all of the circumstances of the case. However, it may be that cases (and lifestyles) of this ilk are now an endangered species. As Mrs Justice Baron observed, “In short, it was an idyll redolent of English life of yester year […]a life that few can afford now, with great privileges and prestige” - perhaps soon to exist only on Sunday evenings at 9pm on ITV.
* EWHC 2063 (Fam)
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