Egerton and Another. v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 18 May 1983 |
| Date | 18 May 1983 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal.
Mr. R. Walker Q.C. (instructed by Messrs. Currey & Co.) for the taxpayers.
Mr. J. Mummery (instructed by the Solicitor of Inland Revenue) for the Crown.
Before: Oliver, Kerr and Slade L.JJ.
Capital transfer tax - Appointment of property held on protective trusts - Construction of legislative provision - Retrospective application of charging provision - Finance Act 1975 schedule 5 subsec-or-para 15 schedule 5 subsec-or-para 18Finance Act 1975, Sch. 5, para. 15, 18 - Finance Act 1978 section 71Finance Act 1978, sec. 71.
This was an appeal by taxpayer/trustees from the decision of Nourse J., reported at 82 BTC 8023, that Finance Act 1978, Finance Act 1978 section 71sec. 71, applied retrospectively to charge to capital transfer tax an appointment of trust property made before the passing of that Act.
The taxpayers were trustees of a 1946 discretionary settlement. On 19 July 1978 they executed a deed of revocation and new appointment which had the effect of contingently settling the appointed property on certain of the trust beneficiaries. It was common ground that, at the date of the appointment, no charge to tax arose under Finance Act 1975 schedule 5 subsec-or-para 15Finance Act 1975, Sch. 5, para. 15. However, the Finance Act 1978 received Royal Assent on 31 July 1978 and Finance Act 1978 section 71sec. 71 of that Act had a degree of retrospective effect which the Crown argued operated to subject the appointed property to a charge to capital transfer tax.
For the taxpayer it was contended that Nourse J.'s conclusion that all of Finance Act 1978 section 71sec. 71 was to be deemed to have had effect from 11 April 1978 was incorrect. Rather, it was submitted that the exemption conferred under the final part ofFinance Act 1978 section 71 subsec-or-para (2)sec. 71(2) did not refer to any particular effective date and should be taken as coming into force as from the date on which the Act received Royal Assent, namely 31 July 1978. Alternatively, it was submitted that any doubt as to construction should be resolved in favour of the taxpayers, applying the presumption against statutes having retrospective effect.
Held, appeal dismissed.
1. Only if the phrase "the coming into force of this section" inFinance Act 1978 section 71 subsec-or-para (2)sec. 71(2) was read in isolation, would the date of the Act receiving Royal Assent be the effective date.
2. If there were any substantial doubt about the construction of the phrase "the coming into force of this section" that doubt should be resolved in favour of the taxpayers because of the presumption militating against retrospective application of statutory provisions.
3. Here there is no real doubt that the words in issue require an assumption that all of Finance Act 1978 section 71sec. 71 was to have effect from 11 April 1978. The effective date of the charging provision is separated from the exemption only by a semi-colon and the exemption provision refers to the coming into force of that "section" rather than of that "Act". Again the use of the words "but" and "only" in the second part of Finance Act 1978 section 71 subsec-or-para (2)sec. 71(2) support the Crown's argument that the exemption was intended to apply only to those accumulation and maintenance trusts already in existence on 11 April 1978 - the date on which it was announced in the Budget that the capital transfer tax provisions were to be amended to tax appointments of the kind in issue in this case.
The taxpayers, Thomas Edward Sydney Egerton and Ian Hamish Leslie-Melville, the trustees of a settlement made by the 10th Duke of Devonshire, appealed against the decision of Nourse J. who dismissed their appeal from the Commissioners.
By notice of an appeal dated 23 April 1982, the taxpayers appealed on the following grounds that:
(2) the judge, having correctly recognised that the section has two distinct legislative purposes (e.g. (i) to counteract a particular tax-avoidance device and (ii) to remove the "protective trusts trap" in relation to "accumulation and maintenance" trusts) was wrong in holding that the section evinces a clear intention to impose a retrospective tax charge for both (and not merely the first) of those purposes;
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(3) the judge was wrong in treating as insignificant the difference in language between the words "this section shall be deemed to have come into force" and "the coming into force of this section" inFinance Act 1978 section 71 subsec-or-para (2)sec. 71(2) since:
(a) it is a basic constitutional principle that no Act of Parliament (or part of an Act of Parliament) can actually come into force before the Act receives the Royal Assent;
(b) different parts of an Act may however come into force on different dates on or after the Royal Assent, and such was the case with theFinance Act 1978; it would not therefore have been appropriate for Finance Act 1978 section 71 subsec-or-para (2)sec. 71(2) to have referred to "the coming into force of this Act";
(4) the judge was wrong in his view that the taxpayers' case required the different parts of Finance Act 1978 section 71 subsec-or-para (2)sec. 71(2) to be construed as directed to different dates: the judge should have held that the first part ofFinance Act 1978 section 71 subsec-or-para (2)sec. 71(2) is (as is common ground) directed with retrospective effect at a particular tax-avoidance device, but that the second part is not specifically directed at any date, but is instead directed at limiting the consequences of the general change in the capital transfer tax treatment of protective trusts made by Finance Act 1978 section 71Finance Act 1978, sec. 71;
(5) the judge ought not in any event to have confirmed the determination of the Board of Inland Revenue because on any view the conditions inFinance Act 1975 schedule 5 subsec-or-para 15Finance Act 1975, Sch. 5, para. 15(3) did not become satisfied on 19 July 1978; it was only the enactment of the Finance Act 1978 which caused the conditions to become satisfied (or produced the situation that they were deemed to have become satisfied), and they became satisfied "by reason only" of its enactment.
Slade L.J.: This is the judgment of the court on an appeal from a judgment of Nourse J. delivered on 19 February 1982 and relating to capital transfer tax. The appellants are the present trustees of a settlement dated 14 March 1946 and made by the 10th Duke of Devonshire. The matter came before Nourse J. by way of an originating summons issued by them with the consent of the Commissioners of Inland Revenue, who are the respondents to the summons and this appeal.
The issue may be summarised as follows. The 1946 settlement was a settlement in discretionary form. On 19 July 1978 the appellant trustees executed a Deed of Revocation and New Appointment ("the 1978 appointment") relating to part of the property comprised in the 1946 settlement. It is common ground that, as the law stood at 19 July 1978, the execution of that deed gave rise to no charge for capital transfer tax in respect of this appointed property. Twelve days later, however, on 31 July 1978, the Finance Act 1978 received the Royal Assent. Finance Act 1978 section 71Section 71 of that Act altered in some respects the treatment of property held on protective trusts, for capital transfer tax purposes. It is common ground that the provisions of Finance Act 1978 section 71sec. 71 have a degree of retrospective effect. The question for decision is whether, as the Crown contends and Nourse J. held, when the 1978 Act came into force, the section operated retrospectively to subject the appointed property to a charge for tax to which it was not subject immediately after the execution of the appointment.
The question is thus ultimately a short one depending on the true construction of Finance Act 1978 section 71sec. 71. It is however a difficult one, which necessitates a summary of the somewhat complicated history of the relevant legislation. In attempting this summary, we gratefully acknowledge our indebtedness to the argument of Mr. Robert Walker for the trustees and to the judgment ofVinelott J. in Thomas v. I.R. Commrs. UNK[1981] STC 382.
Capital transfer tax (which, for brevity, we will henceforth call "CTT") was introduced by the Finance Act 1975, which imposed such tax, subject to a number of exemptions, on a "transfer of value". The simplest example of a "transfer of value" is an ordinary gift inter vivos. Devolutions of property on the death of a person leaving free estate are also treated as transfers of value, though again these may be subject to exemptions. The 1975 Act also contained a number of provisions subjecting settled property to CTT. These provisions are principally to be found in Finance Act 1975 schedule 5Sch. 5, the scheme of which draws a fundamental distinction between the case where a person is "beneficially entitled to an interest in possession" in settled property and the case where no "interest in possession" in the settled property currently subsists. Paragraphs 3 and 4 contain a number of provisions dealing with the case where at the relevant time there is a person "beneficially entitled to an interest in possession". Subject to certain exemptions, the coming to an end of the interest of such a person, either during his life or on his death, will ordinarily cause a charge for CTT to arise, as if he had made a transfer of value of the property in which the interest subsisted. In particular, para. 4(2) provides in effect that, where during the lifetime of a person beneficially entitled to an interest in possession his interest comes to an end. CTT is to be charged as if he had made a transfer of value of the property in which the interest subsisted.
Finance Act 1975 schedule 5 subsec-or-para 6Paragraph 6 of Sch. 5 deals with the case where there is no interest in possession in settled property. Finance...
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