Commissioners of Inland Revenue v Cookson
| Jurisdiction | England & Wales |
| Judgment Date | 27 January 1977 |
| Date | 27 January 1977 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Surtax-Settlements-Settlor entitled to life interest and also the object of a discretionary power over capital-Release of life interest-No reference to discretionary power-Whether income of settlement to be treated as settlor's for tax purposes-Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c. 10), s. 404(2).
By a trust instrument dated 19th March 1953 the taxpayer made a settlement, inter alia, on trust for himself during his life. The trustees were given power in their absolute discretion during his life and at his request to pay to him for his benefit absolutely the whole or any part of the trust property as they should think fit. The settlor could at any time direct that the power of the trustees should cease. By a deed of release dated 22nd March 1967 the taxpayer surrendered his life interest in part of the settled property to the intent that the released property should be held on the trusts declared by the trust instrument as if the life tenant were dead. No reference was made to the power.
On appeal against surtax assessments for the years 1967-68 to 1969-70 the Special Commissioners upheld the taxpayer's contention that the deed of release on its proper construction extinguished the power, so that s. 404(2), Income Tax Act 1952, as amended, did not apply, and discharged the assessment.
The Chancery Division held that the deed of release merely extinguished the life interest and accelerated the remainders; it did not by implication also extinguish the power. Such extinguishment could not be implied from the circumstance that the deed of release was only effective for fiscal purposes if it extinguished the power as well as the life interest; the release of the life interest was not inconsistent with the continued existence of the power nor would the exercise of the power derogate from the release.
In the Court of Appeal it was further contended on behalf of the taxpayer that, once the settlor had surrendered his life interest in the released property, the released property was no longer "for the time being subject to the trusts hereof" (clause 6 of the deed of release).
Held, that the property did not cease to be subject to the original trusts merely because the first (or any) life interest had been determined, but remained so subject until the trusts affecting the property had been determined by distribution or otherwise.
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 17th January 1974 Michael John Blencowe Cookson, hereinafter called "the Respondent", appealed against the following assessments to surtax:
1967-68 |
£2,736 |
1968-69 |
£2,827 |
1969-70 |
£1,878. |
2. Shortly stated, the question for our decision was whether the provisions of s. 404(2) of the Income Tax Act 1952, as amended, applied to a settlement made by the Respondent on 19th March 1953 as varied by a deed dated 22nd March 1967.
3. Copies of the following documents were admitted before us:
(2) Trust instrument dated 19th March 1953;
(3) Deed of release dated 22nd March 1967;
(4) Confirmatory deed dated 31st March 1973;
and are annexed hereto marked A, B and C respectively and form part of this Case(1).
4. The following facts were admitted between the parties:
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(2) By trust instrument dated 19th March 1953 (hereinafter called the trust instrument) the Respondent settled certain freehold land (hereinafter called the resettled lands) subject to the protected life interest therein of his father J. C. B. Cookson (hereinafter called the father) on, inter alia, the following trusts:
(a) if Patricia Kathleen Iris Cookson (hereinafter called Mrs. Cookson) should survive the father, that she and her assigns should receive from the death of the father thenceforth during her life the yearly rent charge of £400 clear of all deductions,
(b) subject thereto for the Respondent and his assigns during his life without impeachment of waste and from and after his death,
(c) for the first and every other son of the Respondent successively in remainder one after the other according to seniority in tail male, and
(d) with remainders over.
(3) Clause 6 of the trust instrument was in the following terms:
The Trustees may in their absolute discretion and notwithstanding any other trust power or provision hereby declared or herein contained at any time or times during the lifetime of the Settlor after five years from the date hereof at his request pay or transfer to the Settlor for his own use and benefit absolutely or apply for his benefit the whole or such part or parts of the property for the time being subject to the trusts hereof as the Trustees shall think fit Provided always that the Settlor may at any time or times and whether in conjunction with any appointment by the Settlor under any power contained herein or not by deed revocable or irrevocable direct that the power of the Trustees under this present clause shall cease to apply to the whole or such part or parts of the property for the time being subject to the trusts hereof as the Settlor may by such deed provide and Provided further that during the lifetime of the said
[Mrs.] Cookson the Trustees shall not make any such payment or transfer to the Settlor under this power as would result in the property thereafter to remain subject to the trusts hereof being insufficient in the opinion of the Trustees by the income thereof to provide the yearly sum of Four hundred pounds referred to in Clause 1(a) hereof.(4) By deed dated 22nd March 1967 (hereinafter called the deed of release) made between the Respondent, the trustees of the trust instrument and Mrs. Cookson:
(a) the Respondent surrendered and assigned to the said trustees his life interest in part of the resettled lands (such part being hereinafter called the released property) "to the intent that the said life interest shall forthwith be merged and extinguished in the capital of the [resettled lands] and that the Trustees shall stand possessed of the Released Property upon the trusts declared by the Trust Instrument as if the [Respondent] were dead",
(b) Mrs. Cookson released the released property from the rentcharge of £400 per annum payable to her after the death of the father to the intent that the whole of the said rentcharge should thenceforth be charged on the remainder of the resettled land.
(5) By deed dated 31st March 1973 (hereinafter called the confirmatory deed) made between the Respondent and the trustees of the trust instrument it was witnessed as follows:
1. The parties hereto Hereby Confirm that the Deed of Release was intended to extinguish the said power contained in Clause 6 of the Trust Instrument so far as the same related to the Released Property. 2. If notwithstanding the declaration contained in the Deed of Release or the confirmation hereinbefore contained the said power remains exercisable as regards the whole or any part of the Released Property the [Respondent] hereby releases and forever discharges the Released Property from the said power to The Intent that as regards the Released Property the said power may be wholly extinguished.
5. It was contended on behalf of the Respondent:
(i) that the deed of release showed a clear intention by the Respondent to extinguish the power contained in clause 6 of the trust instrument and that on its proper construction the deed effected such extinguishment;
(ii) that the provisions of s. 404(2), Income Tax Act 1952, as amended, accordingly did not apply to the income of the released property.
6. It was contended on behalf of the Crown:
(i) that the deed of release, while it accelerated the remainders under the trust instrument expectant on the Respondent's death, made no express reference to the power contained in clause 6 of the trust instrument and did not operate to extinguish the said power;
(ii) that the provisions of s. 404(2), Income Tax Act 1952, as amended, applied to the income of the released property.
7. The following authorities were cited before us: Foakesv. Jackson [1900] 1 Ch. 807; Halsbury's Laws of England, Vol. 30, 3rd edn., pages 283-4, paras. 534-5.
8. We, the Commissioners who heard the appeal, accepted the contentions advanced on behalf of the Respondent and discharged the said surtax assessments.
9. The Crown immediately after the determination of the appeal declared to us their dissatisfaction therewith as being erroneous in point of law and on 13th February 1974 required us to state a Case for the opinion of the High Court pursuant to the Taxes Management Act 1970, s. 56, which Case we have stated and do sign accordingly.
The question of law for the opinion of the Court is whether our decision was correct.
J. G. Lewis, Basil James Commissioners for the Special Purposes of the Income Tax Acts
Turnstile House,
94-99 High Holborn,
London WC1V 6LQ
28th June 1974
The case came before Goff J. in the Chancery Division on 4th and 7th July 1975, when judgment was given in favour of the Crown, with costs.
Goff J.-This is an appeal by the Commissioners of Inland Revenue against a decision of the Special Commissioners, who disallowed assessments to surtax which had been made upon the Respondent for the years 1967-68, 1968-69 and 1969-70. The matter arises out of a trust instrument dated 19th March 1953 which created a strict settlement of some extensive landed properties and a deed of release of 22nd March 1967 by which the Respondent surrendered his life interest in a fairly small part of the settled property. The settlement contained a power, to the terms of which I must return in greater detail, authorising the Respondent to request the trustees to raise capital for his benefit and imposing upon them in that event...
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