Arron Banks v The Commissioners for HM Revenue and Customs

Hearing dates: 26 and 27 May 2021

(further written submissions received on 21 and 27 July 2021)

Approved Judgment

Introduction and Background

Between 7 October 2014 and 31 March 2015, the Appellant, Mr Arron Banks, made a series of 14 political donations with a total value of £976,781.38. Some of the donations were made by him in his personal capacity, and others through a company of which he was indirectly the sole beneficial owner, Rock Services Limited. The recipient of the donations was the UK Independence Party (“UKIP”), or (in two instances) UKIP's affiliated youth wing, Young Independence.

We were informed that UKIP has at all material times been a limited company. It was founded in 1991 under the name Anti-Federalist League, but changed its name to UKIP in 1993. Following the entry into force of the Registration of Political Parties Act 1998, it was registered as a political party with the Electoral Commission on 25 February 1999.

UKIP achieved its first electoral success in the 1999 European Parliamentary Elections, when it won three seats in the European Parliament and 6.5% of the total votes cast in the UK. This success was augmented in the European Parliamentary Elections of 2004 and 2009, and reached a peak in the European Parliamentary Election of 2014 when UKIP won 24 seats and 26.6% of the UK popular vote. This was a greater measure of success than that achieved by any other UK political party, both in terms of the number of seats won and in terms of the number of votes cast.

By contrast, UKIP's success in obtaining representation in the UK Parliament at Westminster came more slowly, and to a much lesser extent. UKIP contested the UK General Elections in 1997, 2001, 2005 and 2010, but without winning any seats, and with a share of the popular vote which rose from 0.3% in 1997 to 3.1% in 2010. It was not until 2014 that UKIP achieved its first successes, in each case at a by-election. On 9 October 2014, Mr Douglas Carswell won the seat of Clacton, obtaining 59.7% of the votes cast, and on 20 November 2014, Mr Mark Reckless won the seat of Rochester and Strood, with 42.1% of the votes cast in that constituency.

In the next General Election, which took place on 7 May 2015, UKIP secured 3,881,099 votes (12.6% of the total in the UK), and one Member of Parliament (“MP”) was elected.

It can be seen from this narrative that, when Mr Banks made the donations summarised in [1] above, UKIP had no MP at Westminster who had been elected at the 2010 General Election, although during the period when the donations were made UKIP won the two by-election victories which I have mentioned. In fact, only the first of the donations (a gift in cash of £100,000 made by Rock Services Ltd on 7 October 2014) was made before the election of Mr Carswell as UKIP's first MP, and all but the first four of the donations were made at a time when UKIP had two MPs at Westminster.

It has at all stages been common ground that the donations made by Mr Banks personally constituted transfers of value made by him for the purposes of inheritance tax (“IHT”), and that the donations made by Rock Services Ltd are to be treated in the same way by virtue of the charge imposed on participators in close companies by section 94 of the Inheritance Tax Act 1984 (“ IHTA 1984” or “the 1984 Act”).

Section 2(1) of IHTA 1984 provides that:

“A chargeable transfer is a transfer of value which is made by an individual but is not (by virtue of Part II of this Act or any other enactment) an exempt transfer.”

The exemption with which we are concerned is contained in section 24 of the 1984 Act. Under the heading “Gifts to political parties”, the section (as in force in the tax year 2014/15) provided materially as follows:

“(1) Transfers of value are exempt to the extent that the values transferred by them—

(a) are attributable to property which becomes the property of a political party qualifying for exemption under this section; …

(b) …

(2) A political party qualifies for exemption under this section if, at the last general election preceding the transfer of value—

(a) two members of that party were elected to the House of Commons, or

(b) one member of that party was elected to the House of Commons and not less than 150,000 votes were given to candidates who were members of that party.”

As a matter of construction of the statutory wording, and leaving aside for the moment any impact of the Human Rights Act 1998 (“ HRA 1998”), it is clear (and has never been disputed by Mr Banks) that the donations which he made to UKIP in the 2014/15 tax year cannot qualify for exemption under section 24 of the 1984 Act. The reason for this is that at the last general election preceding the transfers of value, i.e. the 2010 General Election, no member of UKIP was elected to the House of Commons: see [4] above. It follows that neither of the alternative qualifying conditions contained in paragraphs (a) and (b) of section 24(2) was satisfied. The elections of Mr Carswell and Mr Reckless in the course of the year cannot assist Mr Banks, because they were elected at by-elections and not at the previous general election.

Accordingly, by a notice of determination dated 5 February 2017 and given by the respondent Commissioners for HM Revenue and Customs (“HMRC”) under section 221 of IHTA 1984, it was determined that the donations made by Mr Banks were chargeable transfers within section 2 of the 1984 Act. The IHT chargeable in respect of those transfers was stated as being £162,945.34 to the best of HMRC's judgment. Although nothing turns on the precise figures, it may reasonably be inferred that this figure was arrived at by applying the lifetime rate of 20% to the value transferred in excess of the unused portion of Mr Banks' nil-rate band (which was then £325,000): see section 7(1), (2) of, and Schedule 1 to, IHTA 1984.

Mr Banks appealed against this notice of determination to the First-tier Tribunal (Tax Chamber) (Judge Ashley Greenbank), which dismissed his appeal for the reasons given in a decision released on 15 October 2018 (“the FTT Decision”: see [2018] UKFTT 617 (TC), [2019] STFD 304). In summary, Mr Banks (who was then represented by Mr Imran Afzal of counsel) argued that the application of section 24 in accordance with its terms breached his human rights, or alternatively breached UKIP's rights, under the European Convention on Human Rights and Fundamental Freedoms (“the ECHR”), as incorporated into UK domestic law by HRA 1998; and that section 24 could, and therefore should, be construed, or “read down”, in accordance with section 3 of HRA 1998 in such a way as to secure compatibility with those rights. Mr Banks also advanced a further argument based on alleged breach of European Union law, which is no longer pursued.

The main argument advanced by Mr Banks was that section 24, as it stands, unlawfully discriminated against him contrary to Article 14 of the ECHR read with Article 1 of the First Protocol to the ECHR (“A1P1”) (protection of property). The discrimination claim under Article 14 was also put in conjunction with either Article 10 (freedom of expression) or Article 11 (freedom of assembly) of the ECHR. In the further alternative, Mr Banks alleged that there had been a direct infringement of his own rights under Articles 10 or 11.

Although Mr Banks' appeal was dismissed, he achieved a considerable measure of success before the FTT. Judge Greenbank held that Mr Banks had established a case on the basis of indirect discrimination against him under Article 14, on the grounds of his political opinions, and that the defence of justification failed. Nevertheless, no remedy could be granted to him, because it was not possible to construe section 24 of IHTA 1984, pursuant to section 3 of HRA 1998, in a Convention-compliant manner. It is material to note at this point that it was not open to the FTT to make a declaration of incompatibility under section 4 of HRA 1998, because that remedy may only be granted by a “court” as defined in section 4(5). The definition does not include tribunals.

Mr Banks appealed against the outcome of the FTT Decision to the Tax and Chancery Chamber of the Upper Tribunal. By a respondent's notice, HMRC challenged the FTT's conclusions that there had been less favourable treatment on the ground of Mr Banks' political opinions, and (if there had been) that any less favourable treatment was not justified. By its decision released on 1 April 2020 (“the UT Decision”), the Upper Tribunal (Falk J and Judge Timothy Herrington) dismissed Mr Banks' appeal: see [2020] UKUT 0101 (TCC), [2020] STC 996. Furthermore, all of the issues on which Mr Banks had succeeded before the FTT were comprehensively rejected by the Upper Tribunal.

The Upper Tribunal identified the issues which it had to decide in the UT Decision at [54]. Leaving aside the EU law arguments that are no longer pursued, the remaining five issues were in summary as follows:

i) Whether the difference in treatment between Mr Banks, and an individual who did receive an exemption under section 24 of the 1984 Act, amounted to...