Commissioners of Inland Revenue v Clydesdale Bank Plc and Another (John Matthew's Executors)
| Jurisdiction | Scotland |
| Judgment Date | 30 March 1984 |
| Date | 30 March 1984 |
| Court | Court of Session (Inner House - First Division) |
COURT OF SESSION (FIRST DIVISION)-
Development land tax - Executry - Assets disposed of by executors - Whether in course of administration - Whether residuary beneficiaries "absolutely entitled as against the trustees" - Development Land Tax Act 1976, (c 24), s 28.
A testator left the residue of his estate to be divided equally among twelve charitable bodies. His estate included building land which the executors in the course of their administration contracted to sell to a firm of builders subject to planning permission being granted by a certain date. The stipulated date having passed without permission being obtained, the builders withdrew from the contract but expressed willingness to conclude a new contract. The executors then decided that they would treat the land as having been allocated equally among the beneficiaries and that they would enter a new contract in the capacity of agents for the beneficiaries and not as the testator's executors. The beneficiaries were not informed of the executors' decision to allocate the land to them until after the new contract had become unconditional.
The executors were assessed to development land tax in respect of the disposal of the land. On appeal the Special Commissioners held that the rights of the beneficiaries to the land crystallised immediately upon the executors deciding to allocate the land, that s 28 of the Development Land Tax Act 1976, applied, and that the disposal was therefore made by the beneficiaries, jointly, and not by the executors. They allowed the appeal. The Crown appealed.
Held, in the Inner House (First Division) of the Court of Session, allowing the Crown's appeal, that it was the duty of the Respondents, albeit they had been appointed as both executors and trustees of the deceased, to realise the estate and divide the proceeds among the residuary beneficiaries, that they had no power, before the residue of the estate was constituted, to confer upon the residuary legatees complete control in regard to the disposal of the land, and that at the date the contract became unconditional the residuary beneficiaries were not therefore persons for whom an interest in land was held in trust within the meaning of s 28 of the Development Land Tax Act 1976.
Stated for the opinion of the Court of Session as the Court of Exchequer in Scotland under the Taxes Management Act 1970, s 56.
1. On 5 and 6 October 1982 the Commissioners for the Special Purposes of the Income Tax Acts heard the appeal of Clydesdale Bank plc ("the bank") and John Mitchell Melvin Smith W.S. ("Mr. Smith") against an assessment to development land tax in the sum of £91,130 made upon them as the executors of John Matthew, deceased ("the testator"). The bank and Mr. Smith as executors of the testator are hereinafter referred to as "the executors".
2. The assessment under appeal was made in connection with the disposal in September 1978 of certain land ("the subject land") vested in the executors. The question for our determination was whether, prior to such disposal, the subject land was held in such a way that the residuary beneficiaries had become absolutely entitled to the subject land as against the executors, within the meaning of s 28 of the Development Land Tax Act 1976. If the answer to that question were in the affirmative, the assessment fell to be discharged. (It was common ground that in that event assessments against the beneficiaries would be competent, but the aggregate liability to tax would be very greatly reduced by the operation of s 12(1) of the said Act: that was the substantial purpose of the appeal.)
3. The greater part of the hearing before us was devoted to the presentation of evidence on the facts. The present Case is concerned with the question whether, in the light of the facts not now in dispute, the executors' decision made in August 1978 to treat the subject land as allocated to the beneficiaries was effective in law to cause the beneficiaries to become absolutely entitled to that land as against the executors and trustees within the meaning of s 28 of the Development Land Tax Act 1976.
4. Oral evidence was given before us by Mr. Smith and by William Graham Minty, an assistant manager of the Trustee Department of the bank and the officer who has throughout had the conduct of the administration of the testator's estate on the bank's behalf ("Mr. Minty"). In addition, copies of the following documents were proved or admitted:
(a) The testator's trust disposition and settlement ("the will") dated 9 December 1970 and registered in the Books of Council and Session on 31 March 1976;
(b) a bundle of correspondence, accounts, notes of meetings etc, including in particular: (i) letters passing between Messrs. Masson & Glennie (in which Mr. Smith is a partner) and the solicitors who acted for the purchasers of the subject land; (ii) letters passing between Messrs. Masson & Glennie and the beneficiaries; and (iii) notes of meetings held on 22 August and 7 September 1978 between Mr. Smith, Mr. Minty, the purchasers and their solicitors; and of discussions between Mr. Smith and Mr. Minty before and after the first of those meetings;
(c) interim accounts of the Executry to 14 September 1982.
We do not annex any of the documents as exhibits but all or any of them are available for inspection by the Court if required.
5. The following facts were admitted or proved:
(a) The testator lived at Middle Grange, Peterhead, Aberdeenshire, a heritable property originally comprising a residence and some 28 acres of land.
(b) In or about 1970 the testator decided to sell Middle Grange for development and he obtained outline planning permission. The disposal of the property was to take place substantially in three phases. The land comprised in the first phase was sold in 1971 and was paid for during the testators' lifetime. The land comprised in the second phase (90 sites) was sold in 1975 at a price of £13,000 per site. The developers were to pay for each of those sites as and when the house to be built on it was sold by them. During the testator's lifetime payments in respect of eight sites only became due. The land comprised in the third phase, extending to 10.43 acres or thereby, constitutes the subject land.
(c) The testator died on 29 March 1976 domiciled in Scotland. By his will he appointed the bank and Mr. Smith to be his executors and trustees and he assigned, disponed and conveyed to them the entirety of his property in trust (after providing for the payment of his debts, funeral expenses, death duties, administration expenses and a pecuniary legacy to his brother) as follows: "I direct my Trustees to divide the residue of my said means and estate equally among the following charities", and he then named twelve charitable institutions ("the beneficiaries"). The will proceeded:
And I provide that my Trustees shall have the fullest powers of and in regard to realisation, investment, administration, management and division as if they were beneficial owners and without prejudice to the fore-going generality they shall be entitled to retain and renew any assets of my estate or to allow any beneficiary to take over any of the said assets at valuation, and to invest all or any of the estate under their charge in such investments whether Trustee investments or not, as my Trustees in their sole discretion may think fit.
(d) The bank and Mr. Smith accepted office; they were confirmed as executors nominate on 23 June 1976; and notice of title to the heritable estate (substantially, the testator's residence and the subject land) was recorded in the General Register of Sasines applicable to Aberdeenshire on 12 October 1976.
(e) By the beginning of April 1977 the executors had terminated arrangements previously made by the testator for the disposal of the subject land and they proceeded to seek a new purchaser. In the event, by Missives dated 24 October and 3 November 1977, they contracted to sell the subject land to Barratt Developments (Aberdeen) Ltd. ("Barratts") at a price of £14,000 per acre. That contract was conditional; in the event of Barratts not obtaining satisfactory detailed planning permission by 28 August 1978, Barratts were entitled to withdraw without penalty, by written notice to the executors to be received by them not later than 24 August 1978. Subject thereto, the purchase price was payable in full on 1 September 1978.
(f) By letters dated 9 November 1977 the executors informed each of the beneficiaries of the conditional sale of the subject land, naming the purchasers and stating the price.
(g) During the negotiations leading to the conclusion of the aforementioned contract with Barratts, Mr. Smith and Mr. Minty appreciated that a charge to capital gains tax would arise because the proposed price of £14,000 per acre exceeded that on which capital transfer tax had been assessed in connexion with the testator's death. They considered the possibility of allocating the subject land to the beneficiaries so that no charge would fall on themselves as executors. No such step was taken at that time. Final provision for payment of the capital transfer tax due on the testator's death had not then been made.
(h) By the end of January 1978 the executors had paid the testator's debts and funeral expenses, the legacy to his brother (and had settled a further claim made by the latter), and the capital transfer tax (almost) in full. They also understood that there were no outstanding income tax or capital gains tax liabilities. Futher income tax would become payable during the executry; there were prospective liabilites to capital gains tax and development land tax in connexion with the sale of the subject land (on the footing that Barratts would not withdraw from the existing contract); and there would be administration costs to be met. Against those future...
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