Clarke v British Telecom Pension Scheme Trustees
| Jurisdiction | England & Wales |
| Judgment Date | 24 February 2000 |
| Date | 24 February 2000 |
| Court | Court of Appeal (Civil Division) |
COURT OF APPEAL
Before Dame Elizabeth Butler-Sloss, President, Lord Justice Robert Walker and Lord Justice May
Income tax - sub-underwriting commissions paid to pension fund trustees - exempt from tax
The income derived from commission payments received by trustees of exempt approved pension funds from their activities of sub-underwriting share issues was within the exemption from tax provided by section 592(3) of the Income and Corporation Taxes Act 1988.
A decision by special commissioners that the income was not trading income and thus fell within the exemption was not vitiated by any error of law and could not be interfered with by an appellate court.
The Court of Appeal so held in a reserved judgment allowing an appeal by trustees of three pensions schemes, the BT Pension Scheme, the Post Office Staff Superannuation Scheme and the Post Office Pension Scheme, from the judgment of Mr Justice Lightman (The Times October 16, 1998; (1998) STC 1075) whereby he allowed an appeal by the Crown and reversed the special commissisoners' determination in relation to estimated assessments to income tax for years going back to 1981-1982.
The Court of Appeal, upholding the special commissioners and Mr Justice Lightman, stated that had the sub-underwriting income been trading income then the trustees would also have been liable for the additional rate tax applicable to certain income of discretionary trusts, because the exemption contained in section 686(2) of the 1988 Act would not have been applicable.
The schemes' trustees entered into agreements with underwriters to purchase at the issue price a proportion of the unsold shares resulting from a rights issue or an initial public offering. Such shares were known as "stick". The trustees received underwriting commission for assuming the risk.
The Crown contended that sub-underwriting for reward amounted to a trade taxable under Case I of Schedule D and thus the commission payments did not qualify for the exemption from income tax for exempt approved pension schemes provided for by section 592(3) of the 1988 Act.
Mr Michael Flesch, QC and Mrs Felicity Cullen for the trustees; Mr Ross Cranston, QC, Solicitor-General and Mr Timothy Brennan for the Crown.
LORD JUSTICE ROBERT WALKER said that the appeal was concerned with the taxation of pension schemes.
Occupational pension schemes were of enormous social...
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