Commissioners of Inland Revenue v Mills (Hayley)
| Jurisdiction | England & Wales |
| Judge | Lord Reid,Lord Morris of Borth-y-Gest,Lord Hodson,Viscount Dilhorne,Lord Salmon |
| Judgment Date | 12 February 1974 |
| Judgment citation (vLex) | [1974] UKHL J0212-1 |
| Date | 12 February 1974 |
| Court | House of Lords |
Revenue - Surtax - Settlement - Company employing infant taxpayer at nominal salary - Large profits earned by providing taxpayer's services - Dividends paid to trustees of settlement of which taxpayer beneficiary - Whether taxpayer “settlor” - Whether taxpayer provided funds for “purpose” of settlement -
In 1958 the taxpayer, then aged 12, showed great promise as an actress. Walt Disney Productions Ltd. wished to secure her exclusive services for five years. Her father wanted to protect her earnings. He took advice and a number of transactions were carried out as part of a comprehensive plan. A company, S. P. Ltd., was formed in 1960, and the shares were issued to the father who transferred them to the trustees of a settlement of which the taxpayer was sole beneficiary, with gifts over in default. The taxpayer entered into a contract with S. P. Ltd. to give them her exclusive services for five years for a salary of £400 per annum. In January 1961, S. P. Ltd. agreed to make the taxpayer's services available to Walt Disney Productions for five years for very large payments in dollars to them. S. P. Ltd., as a result, made big profits which were paid in dividends to the trustees. The taxpayer was assessed to surtax for 1962–63 on the basis that she was a settlor of the settlement and that the dividends were income arising under the settlement so that under section 405 of the Income Tax Act 1952F1 the undistributed income fell to be treated as her income. The taxpayer's appeals to the special commissioners and then to Goulding J. were dismissed. The Court of Appeal having reversed his decision, the Crown appealed to the House of Lords: —
Held, allowing the appeal, that the taxpayer had provided funds for the “purpose” of the settlement, since the source of the dividends was money paid for her work, which, but for that arrangement, would have been received by her, but was instead diverted to the company as a mere channel df transmission to the trustees; that, accordingly, she was a settlor of a settlement, within section 411 (2), of which the undistributed income fell to be assessed under section 405 (1) as her income.
Per curiam. “Purpose” in section 411 (2) does not connote a mental element nor need there be a motivating intention to benefit those interested under the trust (post, p. 331B–C).
The following cases are referred to in their Lordships' opinions:
Copeman v. Coleman [
Crossland v. Hawkins [
Inland Revenue Commissioners v. Prince-Smith (
The following additional cases were cited in argument:
Bulmer v. Inland Revenue Commissioners [
Canadian Eagle Oil Co. Ltd. v. The King [
Chamberlain v. Inland Revenue Commissioners (
De Francesco v. Barnum (
F. S. Securities Ltd. v. Inland Revenue Commissioners [
Herbert (Lord) v. Inland Revenue Commissioners [
Howard de Walden (Lord) v. Inland Revenue Commissioners [
Inland Revenue Commissioners v. Brebner [
Inland Revenue Commissioners v. Clifforia Investments Ltd. [
Inland Revenue Commissioners v. Leiner (
Macklin, Ex parte (
Ransom v. Higgs [
St. Aubyn v. Attorney-General [
Thomas v. Marshall [
Yates v. Starkey [
APPEAL from the Court of Appeal.
This was an appeal from a decision of the Court of Appeal (Lord Denning M.R. and Buckley L.J., Orr L.J. dissenting) given on October 17, 1972, by which the court allowed an appeal by the taxpayer, Hayley Catherine Rose Vivien Mills (the respondent in the House of Lords) from a decision of Goulding J. He had dismissed an appeal by the taxpayer from a decision of the special commissioners, who had dismissed appeals by the taxpayer against assessments of surtax for the years 1962–63, 1963–64 and 1964–65.
There were two questions at issue in this appeal:
(1) The first question was whether the taxpayer was the settlor or one of two settlors, within the meaning of section 411 (2) of the Income Tax Act 1952, of a settlement made in May 1960 for the benefit of the taxpayer, either on the footing that the settlement consisted of a deed of settlement dated May 18, 1960 (the “formal settlement”), made by her father, L. E. W. Mills, or on the footing that the settlement consisted of an arrangement (the “statutory settlement”) consisting of the formal settlement, the incorporation of a company, the issue of the shares in the company to her father, his transfer of those shares to the trustees of the formal settlement, and the making of a service agreement whereby the taxpayer became an employee of the company for modest remuneration.
(2) The second question arose only if it were held, in favour of the appellants, the Commissioners of Inland Revenue, that the taxpayer was such a settlor. On the assumption (which was common ground between the parties) that the taxpayer's father was also a settlor in relation to the settlement, the question arose whether the income of the trustees, consisting largely of dividends paid to them by the company, ranked as “income originating from” the father as settlor or as “income originating from” the taxpayer as settlor, within the meaning of section 409 (6) of the Act.
The facts are set out in the opinion of Viscount Dilhorne.
John Vinelott Q.C., Patrick Medd Q.C. and P. L. Gibson for the Crown.
Stewart Bates Q.C., D. C. Potter Q.C. and David Milne for the taxpayer.
Their Lordships took time for consideration.
February 12, 1974. LORD REID. My Lords, for the reasons given by my noble and learned friend, Viscount Dilhorne, I would allow this appeal.
LORD MORRIS OF BORTH-Y-GEST. My Lords, for the reasons contained in the speech prepared by my noble and learned friend, Viscount Dilhorne, which I have had the advantage of reading, I would allow the appeal.
LORD HODSON. My Lords, for the reasons given by my noble and...
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