Chinn v Hochstrasser ; Chinn (A E) v Collins (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE BUCKLEY,LORD JUSTICE GOFF |
| Judgment Date | 02 February 1979 |
| Judgment citation (vLex) | [1979] EWCA Civ J0202-9 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 1977 No. 8 |
| Date | 02 February 1979 |
[1979] EWCA Civ J0202-9
In The Supreme Court of Judicature
Court of Appeal (Civil Division)
On Appeal from The High Court of Justice
Chancery Division
Revenue Paper
(Mr. Justice Templeman)
Lord Justice Buckley
Lord Justice Goff
and
Lord Justice Shaw (not present when judgment delivered)
MR. D.C. POTTER Q.C. and MR. C.H. McCALL (instructed by Messrs. Berwin Leighton, Solicitors, London EC4E 9HA) appeared on behalf of the Appellants (Appellants).
MR. D. NICHOLLS Q.C., MR. PETER GIBSON and MR. A. WALTON (instructed by The Solicitor of Inland Revenue, London WC2R 1LB) appeared on behalf of the Respondents (Respondents).
There are two appeals before this court from decisions of Mr. Justice Templeman (as he then was) contained in a single judgment delivered on 20th July 1977. The appellants (to whom I shall refer for brevity as "Anthony" and "Steven") are brothers. In each case the appellant was assessed to capital gains tax for the year 1969/70 in a sum of £130,000 and seeks to avoid liability for the whole amount. The cases turn principally upon the effect on the facts of each case of the Finance Act 1965 Section 42. The facts in each case are identical in all respects. It will be sufficient for me to deal in this judgment with Anthony's appeal. The result must be precisely the same in Steven's appeal.
Shortly stated the facts are these. By a settlement dated 24th February 1960 the father of Anthony and Steven ("the settlor") settled a relatively small number of ordinary shares of 5s.0d. each in Lex Garages Ltd. upon trusts under which the trustees had power with the consent of the settlor during his lifetime to appoint the trust fund in favour of (amongst others) Anthony and Steven. Subject to any such appointment the trust fund was to be held initially upon discretionary trusts for a class consisting of Anthony, Steven, their spouses and issue, and Anthony and Steven were entitled to the fund in equal shares contingently on their respectively attaining the age of 35 years. There were four original trustees of the settlement, all resident in England. In the course of time further Lex shares were brought into the settlement and in 1969 the trust fund included 370,100 Lex ordinary shares. The settlor was concerned about the prospective incidence of capital gains tax. In or about February 1969 he took legal advice about the possibility of mitigating this. His solicitor consulted Messrs. N.M. Rothschild & Sons, the bankers ("Rothschilds"). Inconsequence a scheme was devised by Rothschilds and the settlor's solicitor in London in pursuance of which in due course the following seeps were taken.
(1) On 31st March 1969 the settlor appointed a company controlled by Rothschilds and called N.M. Rothschild & Sons (C.I.) Ltd. ("N.M.R.(C.I.)) which was incorporated in Guernsey and had its registered office and place of business there and two directors of that company, both resident in Guernsey, to be trustees of the settlement in the place of three of the original trustees. The majority of the trustees were thenceforth domiciled and resident, or normally resident, in Guernsey.
(2) Between 31st March 1969 and 28th October 1969 the general administration of the settlement was moved to Guernsey.
(3) On 28th October 1969 a company called Rozel Holdings Ltd. ("Rozel"), which was a company incorporated and having its registered office in Jersey the whole share capital of which was owned by Rothschilds, insured the life of Anthony for £350,000 for one month, i.e. until 28th November 1969.
(4) On 28th October 1969 the trustees of the settlement with the consent of the settlor by deed appointed, in exercise of their power of appointment under the settlement, that 184,500 Lex ordinary shares and the investments for the time being representing the same should be held in trust for Anthony absolutely if he should survive three days from the date thereof (Case page 10).
(5) Thereupon on the same day Anthony by deed assigned to Rozel his contingent interest under the appointment in consideration of a covenant by Rozel to pay him or his personal representatives £352,705 by way of purchase price on 1st November 1969. The deed of assignment was to be construed in all respects inaccordance with the law of Jersey (Case page 12).
(6) A cheque for £352,705 drawn by Rozel on a Jersey bank dated 1st November 1969 was handed to Anthony and was immediately handed by him to N.M.R. (C.I.) for the credit of an account then recently opened by him with that company. Rozel's bank balance was on 28th October 1969 insufficient to meet this cheque and a similar cheque drawn in favour of Steven.
(7) Thereafter on the same day Anthony and Rozel executed an agreement whereby Rozel agreed to sell and Anthony agreed to buy 184,500 Lex ordinary shares free from all liens, charges or encumbrances at the price of £355,162. 10s.0d. to be paid in Guernsey on completion on 1st November 1969, time being of the essence. That document was to be read and construed in all respects according to Guernsey law (Case page 14). The amount of £355,162. 10s.0d. was the middle market price of 184,500 Lex ordinary shares on the London Stock Exchange at the close of business on 27th October 1969.
(8). Anthony signed a letter dated 28th October 1969 addressed to N.M.R.(C.I.) in these terms: "On 1st November 1969 please debit my account and pay the sum of £355,162. 10s.0d. to Rozel Holdings Limited".
The trust holding of 370,100 Lex ordinary shares was registered in the name of a nominee company. After 1st November 1969 notice was given to the nominee that 184,500 of those shares were beneficially owned by Anthony. The trustees were duly notified of the Deed of Assignment. All the transactions carried out on 28th October 1969 were carried out in Jersey at a meeting at which Anthony and Steven, the settlor's solicitor and one of the Guernsey individual trustees were present, as well as representatives of Rothschilds, N.M.R.(C.I.) and Rozel.
The relevant statutory provisions are the following. Under the Finance Act 1965 Section 25 (1) on the facts of this case the trustees of the settlement are not to be treated as resident or ordinarily resident in the United Kingdom. Consequently they are not liable to capital gains tax.
The Finance Act 1965, Section 25 (5), reads as follows: "On the occasion when a person becomes absolutely entitled to any settled property as against the trustee all the assets forming part of the settled property to which he becomes so entitled shall be deemed to have been disposed of by the trustee, and immediately reacquired by him in his capacity as a trustee within Section 22 (5) of this Act, for a consideration equal to their market value".
If on 1st November 1969 anyone became absolutely entitled as against the trustees of the settlement to the subject matter of the appointment in favour of Anthony, the trustees must be deemed to have then disposed of that subject matter and to have immediately re-acquired it as trustees within Section 22 (5) at its market value. Section 22 (5), so far as relevant to the present case, provides as follows: "In relation to assets held by a person … as trustee for another person absolutely entitled as against the trustee…this part of this Act shall apply as if the property were vested in, and the acts of the…trustee in relation to the assets were the acts of, the person or persons for whom he is … trustee".
Special provision is made by Section 42 for what are called non-resident trusts. Under Section 42 (1) that section is applicable to the present case. Section 42 (2) is in the following terms: "Any beneficiary under the settlement who is domiciled and either resident or ordinarily resident in the United Kingdom duringany year of assessment shall be treated for the purposes of this Part of this Act as if an apportioned part of the amount, if any, on which the trustees would have been chargeable to capital gains tax under section 20 (4) of this Act, if domiciled and either resident or ordinarily resident in the United Kingdom in that year of assessment, had been chargeable gains accruing to the beneficiary in that year of assessment; and for the purposes of this section any such amount shall be apportioned in such manner as is just and reasonable between persons having interests in the settled property, whether the interest be a life interest or an interest in reversion, and so that the chargeable gain is apportioned, as near as may be, according to the respective values of those interests, disregarding in the case of defeasible interest the possibility of defeasance".
There can be no doubt that on 1st November 1969 Rozel, or Rozel and Anthony, or Anthony, became entitled to Anthony's appointed fund absolutely as against the trustees of the settlement. Accordingly under Section 25 (3) the trustees must be deemed to have then disposed of that fund and to have immediately re-acquired it. Since, however, the trustees are not liable to capital gains tax because under Section 25 (1) they are not to be treated as having then been resident or ordinarily resident in the United Kingdom, no capital gains tax would be exigible unless the case falls within the terms of Section 4-2 (2). It is immaterial whether Rozel was a beneficiary under the settlement within the meaning of that subsection, for Rozel was not domiciled and either resident or ordinarily resident in the United Kingdom during the year of assessment in question. Anthony on the other hand was domiciled and either resident or ordinarily resident in...
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