This week saw the passing of comic legend Ken Dodd, and while friends, family and fans mourn his loss, one of Dodd’s final actions could be interpreted as a final joke at HMRC’s expense.
Two days before his death the comedian married long-term partner Anne Jones, with whom he had shared his Liverpool home for the past 40 years.
While the couple were reportedly delighted to have finally tied the knot, the action also avoided a potential inheritance tax bill of up to £2.6m.
With Dodd worth an estimated £7.2m, without the marriage the estate could have been liable for a 40% rate of IHT, whereas assets can be passed between married couples free of inheritance tax on death.
The nil-rate band for inheritance tax is currently £325,000, while homeowners have a residence nil-rate band at £100,000 if the home is left to a direct descendant.
The case highlights the current gap between the ways that a “common-law partner” and legal joined a spouse or civil partner are treated when it comes to inheritance tax. The surviving spouse may inherit the entire estate tax-free (if they are UK domiciled), and they can also inherit any unused portion of the nil rate band and the residence nil rate band. Thus the survivor, on his or her death, will have a nil rate band of £650,000 plus a residence nil rate band of £200,000, which will increase to £250,000 on 6 April 2018.
Death, of course, is a significant tax planning event, as the new owner(s) of the estate gain a tax-free uplift in the base cost of the assets for capital gains tax purposes, as they acquire the assets at their market value at the date of death.
Ken Dodd: ‘Failed accountant’
Dodd is no stranger to the Revenue, having faced down a high-profile tax evasion case in 1989 presided over by Justice Brian Leveson, now perhaps better known for chairing the public inquiry into the ethics of the British press.
The comic was charged with 27 counts of tax evasion over 15 years totalling around £800,000, with the Inland Revenue’s chief investigator accusing Dodd of having undisclosed overseas assets, including bank accounts in Jersey and the Isle of Man, where he flew regularly to deposit undeclared cash.
Dodd was represented in court by famous QC George Carman, who during the case delivered the memorable line: “Some accountants are comedians, but comedians are never accountants”.
Following a three-week trial, Dodd was found not guilty, although tax experts were keen to point out that he settled in full with the tax authority, including penalties.
While Dodd was cleared of all charges by the jury, the case revealed some of the comedian’s eccentricities, including the fact that he had more than £300,000 worth of banknotes in his home stashed in wardrobes, cupboards and suitcases.
In the years after the case Dodd went on to make light of his experience, and in the following years often introduced himself onstage with the line: “Good evening, my name is Kenneth Arthur Dodd, singer, photographic playboy and failed accountant.”