Commissioners of Inland Revenue v Montgomery
| Jurisdiction | England & Wales |
| Judgment Date | 10 December 1974 |
| Date | 10 December 1974 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Capital gains tax-Insurance recovery-Accrued rights under fire insurance policy of person insured assigned for value-Insurance moneys paid to assignee- Whether chargeable gain accrues to assignor-Finance Act 1965 (c. 25), s. 22 and Sch. 7, para. 10.
On 8th November 1968 a property owned by the trustees of a will trust was extensively damaged by fire, with the result that the trustees become entitled to recover £75,192 under certain insurance policies. On 13th November 1968 the husband of one of the trustees paid the trustees £75,192 in consideration of the assignment to him of their rights under the policies, and on 19th and 26th November 1968 the insurers paid to him sums aggregating £75,192 accordingly. On appeal against an assessment to capital gains tax for the year 1968-69 in respect of the gain accruing from the sum received by the trustees as aforesaid, it was contended for the trustees that that sum was not a capital sum received under a policy of insurance within s. 22(3)(b), Finance Act 1965, or a sum received under a policy of insurance within para. 10(2) of Sch. 7 to that Act, and that, while the rights assigned were an asset within s. 22(1)(a), there had by virtue of para. 10(1) of Sch. 7 (which provides that rights under insurance policies shall not constitute an asset on the disposal of which a chargeable gain may accrue) been no disposal of assets, and consequently no chargeable gain, for the purposes of capital gains tax. For the Crown it was contended, inter alia, that the sum received by the trustees was a capital sum derived from assets within s. 22(3), viz. the damaged property. The Special Commissioners upheld the trustees' contentions and allowed the appeal.
Held, that the Commissioners' decision was correct, both (1) because the sum in question was "derived" for the purposes of s. 22(3), Finance Act 1965, from the sale of their rights under the policies and no more and, moreover, (2) because s. 22(3) was confined to cases where no asset was acquired by the person paying the capital sum.
Stated under the Taxes Management Act 1970, s. 56, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 20th June 1973 Robert Montgomery as trustee of Dr. Edwin Montgomery (deceased) (hereinafter called "the Respondent") appealed against an assessment to capital gains tax made upon him for the year 1968-69 in the sum of £50,000.
2. Shortly stated, the question for our decision was whether by virtue of Sch. 7, para. 10(1), Finance Act 1965, certain moneys paid in the manner hereinafter appearing were exempt from capital gains tax, or whether rather such payment of these moneys gave rise to capital gains tax liability by virtue of Sch. 7, para. 10(2), and s. 22(3), Finance Act 1965.
3. The following documents were proved or admitted before us:
A1. Policy of insurance dated 23rd March 1962.
A2. Another policy of insurance of the same date.
B1. Letter of 8th November 1968 to Mr. Greene.
B2(i). Notification dated 9th November 1968 from trustees of Dr. Edwin Montgomery to Alliance Assurance Co. Ltd.
B2(ii). Another similar document of the same date.
B3. Notification dated 14th November from and to the same parties.
C. Grant of probate with will attached to the personal representatives of Dr. Edwin Montgomery deed.
D. Deed of appointment of new trustees dated 10th June 1968.
E. Deed of conveyance dated 29th April 1969.
F. A bundle of correspondence.
Documents A1, A2, B1, B2(i) and B2(ii) and B3 are attached to and form part of this Case(1). The others are not so attached but are available for inspection by the Court if required.
4. The following facts were admitted between the parties:
(2) By his will dated 14th March 1958 the late Dr. Edwin Montgomery (hereinafter called "the testator"), after appointing the Respondent, Margaret Joyce Greene, a daughter of the testator (hereinafter called "Mrs. Greene") and Robert McComb Machenry (hereinafter called "Mr. Machenry") to be his executors and trustees, devised and bequeathed all his real and personal property to the said executors and trustees appointed in his will upon trust to pay his funeral and testamentary expenses and Crown debts and to hold the balance (hereinafter referred to as "the trust property") on the trusts therein declared (hereinafter referred to as "the specified trusts"). The testator's said will gave the trustees thereunder power to sell any leasehold or freehold property vested in them.
(3) On 6th July 1961 the testator died, without having revoked his said will. At the time of his death the testator held, subject to certain charges and leases, the interest comprised in a fee farm grant dated 21st March 1885 and made to the late Revd. Robert Montgomery, the testator's father. At the time of the testator's death this interest comprised the lands and buildings situated at and known as nos. 2/11 Shaftesbury Square and nos. 2/4 Donegall Pass, Belfast, the same being held for ever subject to an adjusted yearly rent of £194.38.
(4) On 14th December 1961 probate of the testator's said will was granted forth out of the Principal Probate Registry to the executors named therein.
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(5) On 23rd March 1962 the Respondent, Mrs. Greene and Mr. Machenry, as the then trustees under the testator's said will, effected with the Alliance Assurance Co. Ltd. (hereinafter called "the company") two policies of insurance (hereinafter referred to as "the said policies") in relation to those buildings
comprised in the said fee farm grant, viz. 2/11 Shaftesbury Square, Belfast (hereinafter referred to as "the said buildings"). The said policies bore the numbers 11246878 and 11246879 and provided cover in respect of destruction or damage occasioned or consequent upon fire (in the case of policy no. 11246879 for loss of rent). Copy policy no. 11246878 with the subsequent endorsements thereon is document "A1" attached hereto(1) . Copy policy no. 11246879 with the subsequent endorsements thereon is document "A2" attached hereto(1). (6) By virtue of a deed of appointment made on 10th June 1968 Margaret Summerhayes, a niece of the testator (hereinafter called "Mrs. Summerhayes") was appointed as trustee of the testator's said will in place of Mr. Machenry. At all material times thereafter the trustees for the purposes of the testator's said will were the Respondent, Mrs. Greene and Mrs. Summerhayes, who collectively are hereinafter referred to as "the trustees".
(7) On 12th August 1968, at the time of the fire hereinafter referred to, the trustees still held, as part of the trust property on the specified trusts, the same interest in the said fee farm grant which had been held by the testator at his death, subject only to the charges and leases then outstanding. On that date the said buildings were extensively damaged by fire, as a result of which only one of them remained standing, the others having all been completely gutted. At the time of this fire the said policies were still in force.
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(8) Between 8th November 1968 and 26th November 1968 (inclusive) the following events all occurred, viz:
(i) On 8th November 1968 the trustees sent to Geoffrey Robert Alexander Greene, husband of Mrs. Greene (hereinafter called "Mr. Greene") the letter copy of which is document "B1" attached hereto(2).
(ii) On 9th November 1968 the trustees sent to the company the two notices copies of which are respectively documents "B2(i)" and "B2(ii)" attached...
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