Commissioners of Inland Revenue v Chubb's Trustee
| Jurisdiction | Scotland |
| Judgment Date | 23 June 1971 |
| Date | 23 June 1971 |
| Court | Court of Session (Inner House - First Division) |
COURT OF SESSION (FIRST DIVISION)-
Capital gains tax - Expenses - Settled property - Deemed disposal by trustee - Persons becoming absolutely entitled as against trustee - Settled fund divided between liferentrix and fiar - Costs of legal and actuarial advice - Stamp duty on transfers, etc. - Whether deductible - Finance Act 1965 (c. 25), s. 25(3) and Sch. 6, para. 4.
Under a marriage settlement executed in 1934, of which the Respondent Bank was trustee, the wife was to enjoy an alimentary liferent and on her death the trust estate was to be held for behoof of the children or remoter issue of the marriage as she should appoint. The husband died in 1952. In 1968 the only child of the marriage, a daughter, was married and had three children, all pupils. The liferentrix and her daughter, being advised that the liferent had ceased to be alimentary on the husband's death, then wished to bring the trust to an end and share the capital between them according to an actuarial valuation. The Respondent obtained advice from counsel that it could properly consent to such an arrangement, and agreed to bear the costs involved out of the trust estate. Accordingly in July 1968 the liferentrix irrevocably appointed the whole capital to her daughter subject to the liferent, and thereupon the liferentrix, the fiar, the grandchildren's father as their guardian and the Respondent entered into an agreement whereby on 23rd July 1968 the capital of the trust estate was to vest absolutely in the liferentrix and the fiar in the proportions of 30 per cent. and 70 per cent. respectively.
For the purposes of capital gains tax the chargeable gains less losses deemed under s. 25(3), Finance Act 1965, to accrue on 23rd July 1968 to the Respondent as trustee were agreed as £18,674 before deductions. The Respondent claimed to deduct, inter alia, £487 in respect of solicitors' fees (including solicitors' fees for negotiations, outlays to counsel for advice, stamp duty on agreements and actuary's fees) and £20 in respect of stamp duty on transfers of investments, as being expenses necessarily incurred in bringing about the chargeable occasion under s. 25(3). On appeal, it was contended for the Crown that the said expenditure was wholly incurred in bringing about the absolute entitlement of the liferentrix and the fiar to the settled property and was in no way referable to the trustee's deemed disposal and reacquisition of the assets under s. 25(3). The General Commissioners held that the expenses in question were allowable.
Held, that the Commissioners' decision was correct.
Stated for the opinion of the Court of Session, as the Court of Exchequer in Scotland, under the Income Tax Act 1952, s. 64.
1. At a meeting of the Commissioners for the General Purposes of the Income Tax for the Division of Edinburgh North held in Edinburgh on 15th May 1969 for the purpose of hearing appeals the Trustee of Lt. Comdr. and Mrs. H.P. Chubb's Marriage Contract (hereinafter called "the trustee") appealed against a capital gains tax assessment for the year 1968-69 in the sum of £18,674.
2. No evidence was given on behalf of the parties but the following facts were admitted:
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(a) Under a marriage contract settlement ("the settlement") between Lieutenant Commander Hugh Percival Chubb ("Commander Chubb") and Mrs. Annita Lindsay Sinclair or Hallaran ("Mrs. Chubb") dated 31st May 1934 and registered in the Books of the Lords of Council and Session on 14th June 1934 the Bank was appointed sole trustee. A copy of the settlement is annexed as exhibit A and forms part of this Case(1).
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(b) Under the settlement the Bank is entitled to remuneration out of the trust estate in respect of its services in accordance with its scale of fees in force from time to time. It also has power to employ and pay a solicitor to transact any business required to be done with regard to the trust estate. The provisions of the settlement are summarised in sub-para. (f) below.
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(c) Commander Chubb died on 9th October 1952, survived by Mrs. Chubb and his only child, a daughter, who now is over 23, is married, and is living with her husband and three pupil children.
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(d) Mrs. Chubb and her daughter, Mrs. Mitchelson, were desirous of varying the settlement by accelerating the vesting of the trust estate in order that Mrs. Mitchelson could get part of the capital as her own before her mother's death.
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(e) After taking legal advice, the cost of which it was agreed, verbally, should be paid by the Bank and charged against the trust estate, Mrs. Chubb by deed of appointment dated 19th July 1968 and registered in the Books of Council and Session on 24th July 1968 (a copy of which is annexed as exhibit B, and forms part of this Case(1) ) exercised her power of appointment under the settlement by irrevocably appointing the whole capital of the trust estate to and in favour of her daughter Mrs. Mitchelson absolutely; and she declared therein that the trust estate should vest indefeasibly in her daughter with immediate effect subject only to her own liferent use of the same.
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(f) The aforesaid deed of appointment paved the way for the agreement dated 19th July 1968 and 23rd July 1968 and registered in the Books of the Lords of Council and Session on 7th October 1968 (a copy of which is annexed as exhibit C and forms part of this Case(1) ) between (1) Mrs. Chubb, (2) Mrs. Mitchelson, (3) Mr. Mitchelson (as guardian of his children) and (4) the Bank (as trustee).
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(g) It recites, inter alia:
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3. The Marriage Contract Deed provides that Mrs. Chubb shall enjoy the alimentary liferent of the trust estate during her lifetime and on her death the trust estate shall be held by the Trustee for behoof of the children or remoter issue of the marriage or any one or more of such children or issue exclusive of the others in such manner and in such shares if more than one as Mrs. Chubb may appoint but declaring that in no case shall any share of capital be made or vest in or be payable to children or remoter issue until they, if males, have attained the age of Twenty-five, or, if females, have attained the age of Twenty-three or married before doing so; failing any such appointment one half of the trust estate is to be made over to such children of the marriage as survive Mrs. Chubb and if sons attain the age of Twenty-five or if daughters attain the age of Twenty-three or marry before doing so and the remaining half is to be made over to such children of the marriage as survive the longer liver of Mrs. Chubb and her husband and if sons attain the age of Twenty-five
or if daughters attain the age of Twenty-three or marry before doing so subject to a destination over to the issue equally per stirpesof any child who may die without having acquired a vested right; all as the Marriage Contract Deed more fully bears. -
4. Mrs. Chubb has been predeceased by her husband who died on Ninth October Nineteen hundred and fifty two and the parties hereto have been advised that Mrs. Chubb's liferent of the trust estate thereby ceased to be alimentary. Mrs. Mitchelson is the only child of the marriage. She is over the age of Twenty-three and is married.
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5. By a Deed of Appointment of even date with her execution of these presents Mrs. Chubb has by virtue of her power to do so under the Marriage Contract Deed irrevocably appointed the whole capital of the trust estate to Mrs. Mitchelson with immediate vesting, and the parties hereto have been advised that the effect of the said Deed is to exclude from any interest in the trust estate all persons other than Mrs. Chubb and Mrs. Mitchelson.
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6. The only persons presently in life other than Mrs. Chubb and who in the absence of the said Deed of Appointment would have any interest under the Marriage Contract Deed are Mrs. Mitchelson's children Jill, Rosemary and Peter all of whom are pupils and whose guardian is their father the Guardian.
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7. Mrs. Chubb and Mrs. Mitchelson wish to enter into an arrangement whereby the Trust created by the Marriage Contract Deed is brought to an end on the basis of the capital of the trust estate being appropriately divided between Mrs. Chubb and Mrs. Mitchelson and the Trustees have been advised by Counsel that it is right and proper for them to consent to such an Arrangement. To this end an actuarial report dated Twenty-sixth June Nineteen hundred and sixty-eight has been obtained from Mr. Eric Allan, Fellow of...
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