Ewart v Taylor
| Jurisdiction | England & Wales |
| Judgment Date | 04 March 1983 |
| Date | 04 March 1983 |
| Court | Chancery Division |
Chancery Division.
C.N. Beattie Q.C. (instructed by Messrs. Browne, Jacobson & Roose) for the taxpayers.
R.E. Nugee Q.C. and C.H. McCall (instructed by the Solicitor of Inland Revenue) for the Crown.
Before: Vinelott J.
Capital gains tax - Discretionary beneficiaries of trust with non-resident trustees - Assessment of past and current gains - Whether past gains should have been assessed in the years accrued - Extent of "scheme" - Whether a separate settlement - How gains to be apportioned -Finance Act 1965 section 42 subsec-or-para (2) section 42 subsec-or-para (3)Finance Act 1965, sec. 42 (2) and (3)(b).
These were appeals and cross appeals from a decision of the Special Commissioners regarding assessments to capital gains tax for the year 1976/77.
The taxpayers were UK resident beneficiaries of a settlement controlled by non-resident trustees.
The initial settlement, the EC No. 1 Settlement, was made in 1965. The settled sum was applied by the trustees in the purchase of 18,000 ordinary £1 shares of a company controlled by the settlor's family. The settlement was made primarily for the benefit of the settlor's children and remoter issue.
In March 1969 the UK trustees were replaced by trustees resident in Jersey and those new trustees were also appointed as trustees of the EC No. 3 Settlement of 12 March 1969. The powers and provisions of the No. 3 Settlement were very similar to those in the No. 1 Settlement. Also on 12 March 1969 the assets of the No. 1 Settlement were transferred to the No. 3 Settlement.
Following the introduction of capital transfer tax (Finance Act 1975) the trustees decided to bring to an end the discretionary trusts in the No. 3 Settlement so as to take advantage of the transitional relief afforded by the Finance Act 1975 schedule 5 subsec-or-para 14Finance Act 1975, Sch. 5, para. 14. Complex arrangements were entered into to achieve that aim without, it was hoped, giving rise to any liability to capital gains tax. Those arrangements, involving three distinct stages, left the company shares in the hands of the beneficiaries under the Settlement.
Preliminary to the scheme the trustees arranged with a Jersey bank for a loan facility of approximately £958,000 over a period of two days. On 8 September 1976 the trustees wrote to two of the beneficiaries offering to sell them a number of the shares in the company at a specified price, that price being conditional on a certificate as to the market value of those shares. Inter alia, the scheme involved the execution of deeds of appointment in favour of the Settlement beneficiaries. By the fourth such appointment ("Angela's appointment") the trustees appointed that a proportion of the sum about to be borrowed from the Jersey bank should be held on the trusts there set out for the benefit of the children of the fourth beneficiary.
The assessments in issue related to chargeable gains which accrued on the disposals by the trustees. To the extent that the gains accrued on disposals made in the years preceeding 1976/77 the assessments were founded on Finance Act 1965 section 42 subsec-or-para (3)sec. 42(3)(b) of the Finance Act 1965. The Commissioners upheld the assessments to the extent of the proportion of the past gains attributable to the sums appointed to the beneficiaries. Before the court, the taxpayers contended that no assessments could be made in respect of the past gains of £379,359 for the year 1976/77, which was the only year for which assessments were made.
Insofar as the gains accrued during the year 1976/77, the Commissioners had found that none of the discretionary beneficiaries were persons with "interests" under the settlement and that no liability arose underFinance Act 1965 section 42 subsec-or-para (2)sec. 42(2) of the Finance Act 1975. Following the decision in Leedale v. Lewis that finding was no longer tenable. The question before the court as regards the current gains was whether as a result of the transactions which took place there was a disposal of shares of the company which, after they had been sold to two of the beneficiaries, were repurchased by the trustees in their capacity as trustees of the sub-settlement.
With regard to the past gains, the taxpayers claimed that, pursuant to the Finance Act 1965 section 42 subsec-or-para (2)Finance Act 1965 sec. 42(2), gains accruing to non-resident trustees should be apportioned to the UK beneficiaries in respect of the year of the gain. It was claimed that it was not proper to make an assessment underFinance Act 1965 section 42 subsec-or-para (3)sec. 42(3)(b) for a subsequent year in which the gain was actually received. The Revenue claimed that an assessment could be made underFinance Act 1965 section 42 subsec-or-para (3)sec. 42(3)(b) where they had been unable to assess the UK beneficiary for the year in which the gain accrued to the non-resident trustees. In this case, the Revenue had sufficient information of the gains which accrued to the non-resident trustees, but sought the court's ruling in relation to an instance where that information was not available to them. For the taxpayers it was pointed out that prior to the decision in Leedale v. Lewis the Revenue did not apportion gains accruing to non-resident trustees to discretionary benefici aries. Rather than treating Finance Act 1965 section 42 subsec-or-para (2)sec. 42(2) as requiring the whole of the gain to be apportioned in the year when it accrued, the Revenue relied onFinance Act 1965 section 42 subsec-or-para (3)sec. 42(3)(b) to found an assessment on a beneficiary in the year of receipt of a capital payment representing a gain accruing in an earlier year.
In relation to the gains which arose in the 1976/77 year (the current gains) three main issues were argued. The first was whether all the transactions which followed the letters of 8 September (the initial approach by the trustees offering to sell shares to two of the beneficiaries) were to be regarded as parts of a single arrangement. The second issue was whether Angela's appointment created a separate settlement distinct from the No. 3 Settlement. The third issue was whether the No. 1 Settlement, the Deed of Appointment of 12 March 1969 and the No. 3 Settlement should all be regarded as part of an "arrangement" or statutory settlement. It was claimed for the taxpayers that, if this was so, the beneficiaries under the Deed of Appointment could defer payment of tax as the No. 1 Settlement was made before 5 April 1965.
Held, Crown's appeals re past gains dismissed. Taxpayers' cross appeals re current gains dismissed.
1. The charge under Finance Act 1965 section 42 subsec-or-para (2)sec. 42(2) is to be made on a beneficiary in respect of the year a gain accrued to a non-resident trustee. It is not open to the Crown to assess past gains which ought to have been assessed for one year of assessment for another year of assessment.
2. The Commissioners did not express any very clear conclusion as to the existence or extent of an arrangement or scheme, but it cannot be inferred that they were satisfied that the three stages of the scheme were part of a single comprehensive scheme within the Ramsay principle. They did not find as a fact that there was an understanding that the scheme would be carried through as a whole or not at all.
3. Two main factors indicate that Angela's appointment created a separate settlement distinct from the No. 3 Settlement.
(a) That appointment was made as part of a scheme for the final distribution of the trust fund comprised in the No. 3 Settlement. The trusts of the No. 3 Settlement were brought to an end and replaced, as to the shares appropriated to the fourth beneficiary and her children, by the trusts of Angela's appointment.
(b) The trustees' accountants treated the trusts as separate from the trust fund comprised in the No. 3 Settlement.
4. The No. 3 Settlement was not part of a statutory settlement made before 6 April 1965. An existing state of affairs was adapted for the purposes of an arrangement which was clearly made in March 1969.
5. Assessments to be remitted to the Commissioners to make any necessary adjustments and to apportion an appropriate part of the gain between the beneficiaries under Angela's appointment.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 18, 19 and 21 May 1981 Neil Marius Layard Ewart (hereinafter called "Mr. Ewart") appealed against the following assessment to capital gains tax:
1976-77 |
£250,000. |
The Commissioners heard concurrently appeals against capital gains tax assessments for 1976-77 made on David Anthony Craven ("Mr. Craven") Captain Ian Walter Farquhar ("Captain Farquhar") Peter Ernest Roylance Vaux and Miss Amanda Vaux together referred to herein as the other taxpayers.
2. Shortly stated the question for decision was whether the five taxpayers were chargeable to capital gains tax under Finance Act 1965 section 42sec. 42 of the Finance Act 1965 in respect of chargeable gains made by trustees, domiciled and resident outside the United Kingdom, of settlements of which the taxpayers, or in some cases the wife of a taxpayer, were discretionary objects, and either benefited from appointments made by the trustees or were ultimate beneficiaries in default of appointment. In this appeal the question for decision was whether Mr. Ewart is chargeable to capital gains tax as aforesaid in relation to settlements of which Mr. Ewart's wife, Mrs. Sally Anne Ewart ("Mrs. Ewart"), was a discretionary object and benefited from an appointment made by the trustees.
3. Mr. Paul Henry Jenkins, a partner in Browne Jacobson & Roose, Solicitors, of Nottingham, gave evidence before the Commissioners.
Paragraph 4 listed the documents proved or admitted before the Commissioners.
5. The facts which the Commissioners found, as a result of the evidence both oral and...
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