Burns v R & C Commissioners
| Jurisdiction | England & Wales |
| Judgment Date | 13 January 2009 |
| Date | 13 January 2009 |
| Court | Special Commissioners (UK) |
special commissioners decision
Howard M Nowlan
James Kessler, QC and Amanda Hardy, counsel, for the Appellants
Akash Nawbatt, counsel, for the Respondents
Income tax - Income and Corporation Taxes Act 1988 section 739 section 741ss. 739 and 741 Taxes Act 1988 - transfers of UK properties to two Jersey companies - whether effected without the purpose of avoiding UK taxation - whether either of the "non tax avoidance" protections of s. 741 was available to preclude liability under s. 739 - appeal dismissed
The taxpayers were liable to tax under ICTA 1988, Income and Corporation Taxes Act 1988 section 739s. 739 since they had failed to demonstrate that when each of them became 18, and thereupon became absolutely entitled to an interest in significant income-producing real properties in the UK, their immediate transfer of their interests to Jersey companies were made without UK tax avoidance being one of their purposes.
The taxpayers' grandfather had built up a very considerable investment in farms and other real property, including an industrial estate. In 1971, certain property was transferred into UK settlements for each of the taxpayers, who had been born in 1962 and 1964 respectively. In the early 1970s the taxpayers emigrated to Jersey with their parents. In 1980, non-resident trustees of all the settlements were appointed in order to avoid paying capital gains tax when the taxpayers reached their eighteenth birthdays. Jersey companies were also incorporated to take the property to which the taxpayers would become absolutely entitled when they were 18.
Each of the taxpayers, on their eighteenth birthday, had signed an assignment of their interest in the industrial estate to Jersey companies. Their parents were the only two directors of the two companies. Whilst at the time of the transfers, respectively in 1980 and 1982, the two taxpayers were resident with their parents in Jersey, they were resident in the UK in the 1999-2000 and 2000-01 tax years, for which assessments had been made on them under the provisions of ICTA 1988, Income and Corporation Taxes Act 1988 section 739s. 739. The income of each of the two companies in those two years was in the region of £160,000 in each year. It was conceded on behalf of the taxpayers that all the pre-conditions to liability under Income and Corporation Taxes Act 1988 section 739s. 739 were satisfied (potentially rendering the taxpayers taxable on the income of the Jersey companies), save for the question of whether their respective transfers were protected by the bona fide defences provided for by Income and Corporation Taxes Act 1988 section 741s. 741.
It was contended that the taxpayers could satisfy both of the s. 741 defences, with the suggestion that the main purpose of the transfers of the properties to companies was to divorce ownership from management, and put the management responsibility in relation to the properties into the hands of the taxpayers' parents, who were the directors of both companies.
Whether the taxpayers had demonstrated that, as regards the transfers, the purpose of avoiding liability to taxation was not a purpose for which the transfer was effected; and whether the taxpayers had established that the transfer was not designed for the purpose of avoiding a tax liability.
A special commissioner (Howard M Nowlan) (dismissing the appeals) said that there were two bona fide defences available under ICTA 1988, Income and Corporation Taxes Act 1988 section 741s. 741. One required each taxpayer to demonstrate, as regards the transfer made by her, that "the purpose of avoiding liability to taxation was not the purpose or one of the purposes for which the transfer …[was] effected". The other applied in relation to "bona fide commercial transactions" and applied if the taxpayers demonstrated that the transfer "… [was] not designed for the purpose of avoiding liability to taxation". Either one was sufficient to eliminate liability to tax under ICTA 1988, Income and Corporation Taxes Act 1988 section 739s. 739.
The test to be satisfied in relation to bona fide commercial transactions was a less stringent test, referring to the overall design underlying the transaction. In the case of the non-commercial transaction, there was the more onerous test of showing that the purpose of avoiding liability to taxation was not even one of the purposes for which the transaction was effected.
It was clear from the evidence that neither taxpayer had actually any personal purpose in effecting the transactions. However, the transactions were clearly implemented very deliberately, and the purpose or purposes underlying the transactions were those influencing the taxpayers' parents. The purpose for which the taxpayers effected the transactions was simply to do what their parents suggested, and it seemed appropriate to proceed on the basis that they effectively sought to achieve those purposes that influenced their parents.
It could not be accepted that the transactions were designed to separate ownership from management and that that was a bona fide commercial purpose. The grandfather and UK agents were managing the site before and after the transfers, and the transfers had no effect on that. The taxpayers played virtually no part in the management of the industrial estate until their grandfather relinquished the reins in about 1987.
The taxpayers had not established that UK tax avoidance was absent from the purposes for which the transfers were made. On the evidence, the commissioner was inclined to think that the ostensible purposes of the transfers were very dubious and not proven, and that on the balance of probabilities the transfers were made largely for purposes connected with the avoidance of UK tax. Accordingly, the appeals would be dismissed.
1. This was a relatively simple case, revolving almost entirely around a factual dispute as to whether the Appellants could demonstrate that when each of them became 18, and thereupon became absolutely entitled to an interest in significant income-producing real properties in the UK, their immediate transfer of their interests to Jersey companies were made without UK tax avoidance being one of their purposes.
2. Whilst at the time of the transfers, respectively in 1980 and 1982, the two Appellants were resident with their parents in Jersey, they are both currently resident and ordinarily resident in the UK, and were also resident in the two tax years, 1999/2000 and 2000/2001, for which assessments have been made on them under the provision of Income and Corporation Taxes Act 1988 section 739section 739 Taxes Act 1988. The income of each of the two companies in those two years for which assessments have to date been made was in the region of £160,000 in each year. It was conceded on behalf of the Appellants that all the pre-conditions to liability under section 739 were satisfied (thus potentially rendering the Appellants taxable on the income of the Jersey companies), save for the question of whether their respective transfers were protected by the bona fide defences provided for by section 741.
3. There are two bona fide defences available under Income and Corporation Taxes Act 1988 section 741section 741. One requires each Appellant to demonstrate, as regards the transfer made by her, that "the purpose of avoiding liability to taxation was not the purpose or one of the purposes for which the transfer … [was] effected". The other applies in relation to "bona fide commercial transactions" and applies if the Appellants "demonstrate that the transfer … [was] not designed for the purpose of avoiding liability to taxation". Either one is sufficient to eliminate liability to tax under section 739. Where transfers were connected with other "associated operations", it is necessary also to demonstrate that those associated operations were effected without having as one of their purposes the relevant UK tax avoidance purposes. Whilst the Respondents reserved the right to raise further arguments in due course in relation to alleged "associated operations", I was asked to ignore "associated operations" in this hearing, and to address the simple question of whether the transfers in isolation were effected for either of the relevant purposes to preclude reliance on section 741.
4. It was initially contended that the Appellants could satisfy both of the section 741 defences, it being suggested that the main purpose of the transfers of the properties to companies was to divorce ownership from management, and put the management responsibility in relation to the properties into the hands of the Appellants' parents, who were the directors of both companies. It was contended that that was a commercial purpose that enabled the Appellants to claim the benefit of the second defence in addition to their reliance on the first test. In cross-examination that alleged purpose was severely undermined, and I concluded that it was not established that the transfers were commercial transactions. I also concluded that the Appellants had not established that UK tax avoidance was absent from the purposes for which the transfers were made. Indeed, whilst the following remark is not required to support the decision, I was inclined to think that the ostensible purposes of the transfers were very dubious and not proven, and that on the balance of probabilities the transfers were made largely for purposes connected with the avoidance of UK tax. These appeals are accordingly dismissed.
5. The Appellants' grandfather, Mr Sydney Sheldon, who died in 1990, had been a successful builder, and director of building companies. His main operations had been in and around Birmingham. It very much appeared that it was through the efforts of Mr Sheldon that the family in general had built up a very...
To continue reading
Request your trial
-
Fisher and Others
...to enable it to be found that she had a tax avoidance motive. They argue that the Special Commissioner case of Burns v R & C CommrsSCD(2009) Sp C 728 supports looking to the motives of Stephen and Peter Fisher. Anne Fisher did not have any specific motive, she would go along with what Steph......
-
R & C Commissioners v Mattu
...was using the offshore structure as his own non-UK investment vehicle in order to keep profits offshore. [309] In Burns v R & C Commrs (2009) Sp C 728, the taxpayers had transferred their interests in certain settlements to Jersey companies at a time when they were Jersey resident. The Spec......
-
Fishers and Others v R & C Commissioners
...that as a matter of fact she had no such purpose and that none should be imputed to her on the basis set out in Burns v R & C Commrs (2009) Sp C 728. [122] However, based on the fact that Stephen Fisher's and Peter Fisher's “motives point in the same direction”, the FTT found (at [517]) tha......
-
Rialas
...there was no tax avoidance motive. This is very different to the present case. [83] We were also referred to Burns v R & C Commrs (2009) Sp C 728, a more recent Special Commissioner's decision, this time a decision of Howard Nowlan. He stated, at para. 59 of his decision: This is because it......