Commissioners of Inland Revenue v Schroder
| Jurisdiction | England & Wales |
| Judgment Date | 26 April 1983 |
| Date | 26 April 1983 |
| Court | Chancery Division |
Chancery Division.
Mr. D.J. Nicholls Q.C. and Mr. C.H. McCall (instructed by the Solicitor of Inland Revenue) for the Crown;
Mr. P.G. Whiteman Q.C. and Mr. R. Walker Q.C. (instructed by Messrs. Slaughter & May) for the taxpayer.
Before: Vinelott J.
Income tax - Surtax - Foreign discretionary settlements - Shares assigned to non-resident trustees - Income of shares comprised in settlements - Power of settlor to appoint committee of protectors and trustees - Trustees' power to apply income from shares with consent of committee - Whether power of settlor constituted power to control application of income - Whether income taxable as income of settlor under Income and Corporation Taxes Act 1970 section 478 section 478 subsec-or-para (5)sec. 478 - Income and Corporation Taxes Act 1970, sec. 478(5)(e).
This was an appeal by the Revenue from a decision of the Special Commissioners regarding assessments to income tax and surtax for the years 1969-70 to 1972-3.
The taxpayer was a UK resident settlor of a settlement controlled by non-resident trustees.
On 2 April 1969, the taxpayer created a settlement of shares he held in Schroder Ltd. on discretionary trusts under Bahamian law with Bahamian trustees to avoid stamp duty.
The taxpayer appointed a committee of protectors who had power to remove and appoint trustees. He also retained a power to appoint new or additional trustees himself with the proviso that he should not appoint an "excluded person" defined in the settlement as the settlor, his father, his named aunts, members of the committee, trustees or the spouses thereof.
The "primary beneficiaries" of the settlement were such organisations and institutions regarded as charitable under Bahamian law as the trustees might from time to time select.
The trustees were to accumulate income from the trust funds subject to a direction to hold capital and income of the funds during the trust period for such primary beneficiaries as the trustees should appoint with the consent of the committee. No capital was ever appointed and all the trust income was accumulated.
The trustees had a power to transfer capital of the trust fund to trustees of any settlement (inside or outside the Bahamas) in which any person was interested, except an excluded person.
On 14 September 1971, the trustees, in the exercise of their power under the settlement, declared that each settlement should be subject to Bermudan law. The taxpayer appointed Vincitas Ltd. to be an additional trustee and caused that company to be incorporated in Bermuda. The original trustees then resigned and Vincitas Ltd. acted as sole trustee. The taxpayer appealed against income tax and surtax assessments on income from the trust funds.
The Revenue contended that the settlor was in a position to ensure that the trustees of the settlement would exercise (or refrain from exercising) their dispositive powers according to his directions. He was a person able to control the application of income withinIncome and Corporation Taxes Act 1970 section 478 subsec-or-para (5)sec. 478(5)(e), as a donee of a power of appointment able to directly control the application of the trust fund and income therefrom.
The Special Commissioners found that the taxpayer was able to appoint new trustees with the consent of the committee who could be expected to deal with the income according to his wishes. However, he could not compel them to do so and they would be in breach of their duties as trustees if they acted without question. The taxpayer's appeal was allowed.
The Revenue appealed against their decision contending that the burden was on the taxpayer to adduce evidence to discharge the assessment. The circumstances in which the settlements were created and the way certain powers had been exercised raised the prima facie inference that the settlor was in a position to direct Vincitas Ltd. to act in accordance with his directions. Therefore, the assessment should stand.
Held, appeal dismissed.
1. The judgment of the House of Lords in Vestey's (Lord) Executors v. I.R. Commrs. TAX(1949) 31 T.C. 1 was conclusive authority for the proposition that the donee of a special power to appoint an interest in the capital or income of a fund amongst a defined and ascertainable class was not, by virtue of that power, able to control the application of the income within Income and Corporation Taxes Act 1970 section 478 subsec-or-para (5)sec. 478(5)(e).
2. The Commissioners had found on the evidence that, even though the taxpayer was able to appoint trustees who could be expected to deal with trust income according to his wishes, he could not compel them to do so. There was no suggestion that the trustees would have acted in breach of their fiduciary duties under the settlement. That conclusion was inconsistent with the claim that the settlor was in practice able to secure that the trustees would exercise their dispositive powers in accordance with his directions.
3. The settlor had, in fact, no power even indirectly to make and unmake trustees. The power to remove trustees was vested in the committee and although the settlor could fill vacancies or appoint additional committee members, that power to appoint new trustees was a fiduciary power. Even though the powers were unusual, it could not be said that the settlor had put himself in a position where he could secure the appointment of trustees who would follow his wishes and not exercise any discretion of their own.
4. It was common ground that if an assessment was made underIncome and Corporation Taxes Act 1970 section 478sec. 478, the burden was on the taxpayer to adduce evidence to discharge the assessment. However, the taxpayer's failure to adduce or assist in enabling the Revenue to adduce such evidence did not raise a prima facie inference that the settlor was, as a practical matter, in a position to control the application of the settlement income when evidence before the Commissioners did not support such an inference.
1. On 5 to 7 November 1979 and 10 to 13 March 1980, inclusive, the Commissioners for the special purposes of the Income Tax Acts heard appeals by Bruno Lionel Schroder (hereinafter called "Mr. Schroder") against the following assessments to income tax and surtax:
(a) income tax assessments for the years 1969/70 to 1972/73 inclusive in the sum of £1,200 for each year: and
(b) surtax assessments in the sum of:
1969/70-£140,000
1970/71-£55,000
1971/72-£35,000
1972/73-£45,000
2. Shortly stated the question for our decision was whether the income arising on 1208,955 shares in Schroders Ltd. must be deemed to be, or treated as, the income of Mr. Schroder for the years 1969/70 to 1972/73 under Income and Corporation Taxes Act 1970 section 478sec. 478 or Income and Corporation Taxes Act 1970 section 447sec. 447 of the Taxes Act 1970.
3. [List of documents proved or admitted - not reproduced here.]
4. The series of transactions effected by means of documents included in that list is described in para. 3 to 10 inclusive of our written decision referred to in para. 7 below: and the additional facts which we found from the evidence are set out in para. 11 to 13 inclusive of that decision. Having been requested by Mr. Schroder to amplify our findings of fact on some points we attach as exhibit 6 a Supplementary Statement of Facts.
5. The contentions of the parties are summarised in para. 14 to 16 inclusive of our written decision.
6. We were referred to the following cases in addition to those mentioned in our decision:
Vandervell v. I.R. Commrs. |
|
Re Flower's Settlement Trusts |
|
Re Locker's Settlement |
7. We, the Commissioners who heard the appeal, took time to consider our decision and gave it in writing on 18 April 1980. A copy of that written decision is annexed hereto as exhibit 5 and forms part of this case.
8. Figures having been agreed between the parties on 11 July 1980 we determined the appeals by adjusting the assessments accordingly as follows:
Income tax |
|
1969/70 to 1972/73 |
two assessments for each of the four years reduced to nil |
Surtax |
|
1969/70 |
assessment reduced to £27,934 |
1970/71 |
assessment reduced to £23,054 |
1971/72 |
assessment discharged |
1972/73 |
assessment reduced to £8,235. |
9. The Crown immediately after the determination of the appeals declared to us their dissatisfaction therewith as being erroneous in point of law and on 4 August 1980 required us to state a case for the opinion of the High Court pursuant to the Taxes Management Act 1970 section 56Taxes Management Act 1970, sec. 56, which case we have stated and do sign accordingly.
10. The question of law for the opinion of the court is whether our decision was erroneous in point of law.
1. The question for determination is whether the income arising on 1208,955 shares in Schroders Ltd. ("the Schroder shares") must be deemed to be, or treated as, the income of Mr. Schroder for the years 1969/70 to 1972/73 under the Taxes Act 1970, Income and Corporation Taxes Act 1970 section 478sec. 478 orIncome and Corporation Taxes Act 1970 section 447sec. 447.
2. For the greater part of the hearing, a further question was in issue; whether Mr. Schroder could prove by lawful evidence that he had assigned his beneficial interest in the Schroder shares to the trustees of certain settlements which he had made. The deed of assignment on which he sought to rely was unavailable, being held in Bermuda by the trustee of those settlements. A copy was produced, but the Inland Revenue objected to its use in evidence on the grounds that the original was unstamped and inadmissible. Mr. Schroder had been advised that it was not chargeable to stamp duty, but after hearing argument we were not satisfied that the deed was sufficiently stamped and we held it to be inadmissible in evidence under the Stamp Act 1891,Stamp Act 1891 section 14sec. 14, with...
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