Berry v Warnett
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE BUCKLE,LORD JUSTICE OLIVER,LORD JUSTICE ACKNER,LORD JUSTICE BUCKLEY |
| Judgment Date | 15 July 1980 |
| Judgment citation (vLex) | [1980] EWCA Civ J0715-1 |
| Docket Number | 1977 No. 10 |
| Court | Court of Appeal (Civil Division) |
| Date | 15 July 1980 |
[1980] EWCA Civ J0715-1
In The Supreme Court of Judicature
Court of Appeal
On Appeal from The High Court of Justice Chancery Division (Revenue Paper) (Final List)
(Mr. Justice Goulding)
Lord Justice Buckley
Lord Justice Ackner
and
Lord Justice Oliver
MR. R. A. MORRITT Q. C. and MR. C. H. McCALL (instructed by The Solicitor of Inland Revenue, Somerset House, Strand, London WC2R 1LB) appeared on behalf of the Respondent (Appellant).
MR. D. C. POTTER Q. C. and MR. C. P. L.. BRAHAM Q. C. (instructed by Messrs. Norton, Rose, Botterell & Roche, Solicitors, London EC3A TAN) appeared on behalf of the Appellant (Respondent).
I have asked Lord Justice Oliver to read the first judgment in this appeal.
This is an appeal by the Crown from a judgment of Mr. Justice Goulding delivered on 22nd March 1978, in which he reversed the decision of the Special Commissioners.
The facts fall within a fairly short compass. The appellants from the Special Commissioners, Mr. Berry and his wife, were the beneficial owners of certain shares and units of convertible unsecured loan stock of Rothschild Investment Trust Ltd., which were either registered in their respective names or were held on their behalf by Lloyds Bank (Branches) Nominees Ltd. The question on this appeal arises out of settlements made by Mr. Berry and his wife respectively of their holdings. The settlements are identical except for the settlors and the amounts of their respective holdings, and there is no question but that the same legal consequences attend the transactions carried out by Mrs. Berry as attend those carried out by her husband. Nor is there any question but that, if a liability to tax arises from her dealings, he as her husband is responsible for discharging it. The total market value of the shares and stock at the date of the settlements was £219,880.
Since the question in each case is the same, I can confine myself to the transactions carried out by Mr. Berry himself. On 15th March 1972 he transferred, or caused to be transferred, the whole of his holdings of shares and stock (consisting of 10,854 shares and a sum of £49,931 stock) to a Guernsey Company, Investors Trustees Limited. That company was not, as a matter of machinery, actually registered as the holder of the stock transferred until 28th April 1972, and did not become theregistered holder of the shares until 12th May 1972, hut nothing turns on the date of registration save this, so far as it is material, that at the end of the financial year 197£ Mr, Berry or his nominee was still the registered holder.
In the meantime two documents were executed. On 4th April 1972 (that is, in the financial year 197£) a settlement was executed to which the parties were Mr. Berry (described as "the vendor"), First Investors & Savers (Jersey) Limited, (a Jersey Company described as "the purchaser") and Investors Trustees Limited (described as "the trustees"). It recited the beneficial ownership of the stock and shares to which I have referred as being in the vendor, and continued as follows: "AND WHEREAS the Vendor and the Purchaser have bargained and agreed for the consideration hereinafter mentioned that the same shall be settled in manner hereinafter appearing NOW THIS DEED WITNESSETH as follows:-1. 'The Trust Fund' means the said property specified in the Schedule hereto and the property for the time being representing the same. 2. IN pursuance of the said agreement and in consideration of the sum of £14,500 now paid by the Purchaser to the Vendor (the receipt whereof the Vendor hereby acknowledges) the Vender as Beneficial Owner HEREBY ASSIGNS unto the Trustees ALL THAT the Trust Fund and the income thereof TO HOLD the same unto the Trustees absolutely and the Vendor hereby directs and declares that the Trust Fund and the income thereof shall henceforth be held after the death of the Vendor and subject In the meantime to the life interest of the Vendor and the powers and provisions hereinafter reserved and contained UPON TRUST for the Purchaser absolutely 3. PROVIDED ALWAYS that during the life of the Vendor the Trustees shall pay the income of the Trust Fund tothe Vendor for his own use and benefit absolutely". There followed a trust for sale or retention at the discretion of the trustees, which I do not think I need read, an unrestricted investment clause, a power in the vendor to appoint new trustees (but excluding the vendor himself) and a charging clause enabling trustees to charge for work done in the execution of the trusts and entitling a trust corporation to remuneration. in accordance with its scale of fees in force at the date of appointment. Finally the shares and stock were described in the schedule.
On 6th April 1972 (that is, in the financial year 1972/73) a further document was executed. That was an assignment, made between Mr. Berry of the one part and First Investors International Limited (a Bahamas company) of the second part. It recited the settlement and the composition of the trust fund and it continued, in recital (C),as follows: "The Vendor has agreed with the Purchaser for the sale to it at the price of £130,753.72 of the said life interest of the Vendor in the Trust Fund", and the operative part was in these terms: "NOW THIS DEED WITNESSETH that in pursuance of the said Agreement and In consideration of the sum of £130,753.72 paid by the Purchaser to the Vendor (who acknowledges the receipt thereof) the Vendor as beneficial owner assigns to the Purchaser all the dividends interest and Income to become payable or accrue henceforth during the remainder of the life of the Vendor from or in respect of the Trust Fund and the investments and property from time to time and for the time being representing the same TO HOLD the same unto the Purchaser absolutely".
As I have said, Mrs. Berry executed identical documents relating to her holdings, so the effect was that between the 3rdApril and the 7th April 1972 Mr. and Mrs. Berry had effectively divested themselves of their entire beneficial interests in the shares and stock concerned in favour of companies which, being resident abroad, would not be liable for any capital gains tax upon the distribution of the trust funds or on any subsequent disposals. It is accepted, of course, that there was a disposal by Mr. Berry and Mrs. Berry of their revisionary interests in favour of the Jersey Company and that capital gains tax is payable on the gain made out of the consideration received from that disposal, calculated on the basis that this was a partial disposal only. It is agreed that on this basis the chargeable gains amount to £14,839.
It is not in issue that there is no chargeable gain in respect of the subsequent assignment of the life interest reserved to the vendor, having regard to the provisions of paragraph 13 of the 7th Schedule to the Finance Act 1965, but the Crown contend that there was, on the execution of the settlement, a complete disposition of the shares which results in a chargeable gain of £150,483. The Special Commissioners upheld that contention. They said:" the scheme of the tax appears to be that a taxpayer who declares himself to be a trustee of property, or transfers property to a trustee other than a bare trustee for himself, makes a disposal for a consideration equal to the market value of the property in respect of which trusts are declared or which is transferred to the trustees. Assets which previously belonged to the taxpayer cease so to belong: prima facie there is a disposal of the whole of the assets.
"Does it affect this conclusion that the transaction here in question appears to fall within the description of a partdisposal in section 22(2)(b) Finance Act 1965? We think not: what matters is that in relation to the shares and loan stock there was a disposal. Whether that disposal was a 'gift in settlement' within the meaning of section 25(2) is similarly not the decisive question: as between Mr. Berry and the trustee there was a disposal of the shares and loan stock. Sale of an asset to the trustee of a settlement would be a disposal of the asset notwithstanding that the seller was interested under the settlement. It seems possible that section 25(2) is intended to do no more than make clear that a gratuitous transfer to the trustee of a settlement is in no different category".
Mr. Justice Goulding felt unable to accept the reasoning of the Commissioners and he allowed the appellant's appeal. From that decision the Crown now appeals. The point is ultimately a fairly narrow one and it turns on the provisions of sections 22 and 25 of the Finance Act 1965, which are not altogether easy to follow.
There is no doubt that, upon the execution of the settlement, the shares and stock settled became settled property as defined in section 45(1) of the Act. That is not in dispute. That subsection defines "settled property" as follows: ""settled property' means, subject to subsection (S) below", which does not matter for present purposes "any property held in trust other than property to which section 22(5) of this Act applies". Settled property is regulated by section 25 of the Act, subsection (1) of which provides that in relation to such property the trustees of the settlement shall be treated as a single and continuing body of persons (distinct from the persons who may from time to time be the trustees) and that body is to be treated as being residentand ordinarily resident in the United Kingdom except in certain circumstances which do not matter for present purposes.
It is pointed out by the Crown that the section goes on to recognise that the interest arising under the settlement is something quite different from the settled...
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