Gareth Clark v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lord Justice Henderson,Nicola Davies LJ,Bean LJ |
| Judgment Date | 21 February 2020 |
| Neutral Citation | [2020] EWCA Civ 204 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2019/0360 |
| Date | 21 February 2020 |
[2020] EWCA Civ 204
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
MR JUSTICE ARNOLD AND JUDGE HERRINGTON
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Bean
Lord Justice Henderson
and
Lady Justice Nicola Davies
Case No: A3/2019/0360
Mr Michael Jones (instructed by Reynolds Porter Chamberlain LLP) for the Appellant
Mr Jonathan Davey QC and Mr Sam Chandler (instructed by the General Counsel and Solicitor to HMRC) for the Respondents
Hearing dates: 29 and 30 January 2020
Approved Judgment
Introduction
This appeal involves two distinct questions of principle. The first concerns the meaning of the word “payment” in the definition of the term “unauthorised member payment” in section 160(2) of the Finance Act 2004, and the consequential charges to income tax in respect of such payments contained in sections 208 to 210. The question, in short, is whether the word “payment”, construed in its statutory context, is apt to include a transfer of money (in the tax year 2009/10) from one registered pension scheme to another, in circumstances where it later transpired that the trusts of the recipient scheme were void for uncertainty. The agreed consequence of this is that the transfer was in law effective to transfer only bare legal title to the money, the beneficial interest in which was held on a resulting trust for the transferor.
The transferor pension scheme was a self-invested personal pension plan, or “SIPP”, established by Suffolk Life for the appellant taxpayer, Mr Gareth Clark. “Suffolk Life” was at the material time the trading name of two companies registered in England and Wales, Suffolk Life Annuities Limited and Suffolk Life Pensions Limited, each of which was authorised and regulated by the Financial Services Authority. Their business was the operation and administration of SIPPs and similar pensions products. The transferee scheme, by contrast, had been set up for the purposes of a scheme devised and sold to Mr Clark as a means of freeing the assets held for him in the Suffolk Life SIPP from the investment and fiscal constraints to which they were subject, and enabling him to control and invest them as he wished, particularly in the London residential property market.
The recipient pension scheme was called the Laversham Marketing Limited Pension Scheme. It was established by a Deed of Trust dated 19 February 2009, made between a company incorporated in Cyprus called Laversham Marketing Limited (“LML”) and a UK-resident and incorporated trustee company, Equity First Trustees Limited. The scheme administrator was a company registered in the Isle of Man, Aston Court Chambers IOM Limited (“Aston Court IOM”). I will refer to this scheme as the “LML Pension”. LML was the principal employer under the scheme, and Mr Clark was its only member. On 20 February 2009, Mr Clark entered into a written contract of employment with LML for an initial fixed period of one year, under which he agreed (at least ostensibly) to “[u]se his expertise and knowledge of the newspaper and magazine publishing industry to identify potential investment opportunities for [ LML] within the United Kingdom.”
The “Prescribed Benefits” payable to Mr Clark under the LML Pension were defined in Schedule 1 to the Trust Deed as follows:
“The benefits under the Scheme for any Scheme Member shall be exclusively the benefits of such kind as are prescribed by Part 4 FA 2004 and shall be computed in accordance with the limits prescribed by Part 4 FA 2004.
The amount of such prescribed benefits shall be 90% (ninety percent) from time to time of the maximum permissible under Part 4 FA 2004.”
In the case of Re LPA Umbrella Trust and Others, Pensions Regulator v A Admin Limited and Others [2014] Pens. L. R 319, Rose J (as she then was) held that member benefits defined in materially identical words in other “pension freedom” schemes were void for uncertainty: see her judgment at [10] to [25]. The insuperable difficulty was that no method of computing pension benefits is set out in Part 4 of the 2004 Act, so as the judge put it at [24]:
“neither the Trustee, nor in default of the Trustee the court, knows from the deed how to go about computing the pension.”
In due course, the First-tier Tribunal (“the FTT”) held in the present case that the trusts of the LML Pension were likewise void for uncertainty.
If the answer to the first question is that the transfer from the Suffolk Life SIPP to the LML Pension was a payment within the meaning of section 160(2) of the 2004 Act, it is common ground that the other requirements for it to be an “unauthorised member payment” were satisfied, and that Mr Clark was therefore in principle liable to pay income tax on the amount of the payment (approximately £2.115 million) at the aggregate rate of 55%, comprising an unauthorised payments charge at the rate of 40% under section 208 and an unauthorised payments surcharge at the rate of 15% under section 209.
The second question which we have to determine is whether Mr Clark has been validly assessed to that tax, by means of a “discovery” assessment made under section 29 of the Taxes Management Act 1970 (“ TMA 1970”) on 25 March 2014 by an officer of the respondent Commissioners for HM Revenue and Customs (“HMRC”). The question arises because, when the assessment was made, the invalidity of the LML Pension had not yet come to light. The attention of HMRC was instead focused on the next stage in the scheme, under which Mr Clark purportedly surrendered his benefits under the LML Pension to the principal employer, LML. The intention of the promoters of the scheme was that this step should constitute an “authorised surplus payment” within section 177 of FA 2004, and thus an “authorised employer payment” within section 175. As such, it would have attracted a charge to tax levied at the rate of 35% on the scheme administrator under section 207, but the idea was that this charge would be unenforceable in practice because Aston Court IOM was a Manx company thought to be outside the charge to UK corporation tax.
At the time when it was made, the primary basis of the assessment was that the ostensible “surrender” by Mr Clark of his benefits under the LML Pension did not give rise to an authorised employer payment within the meaning of the 2004 Act, and that the payment made to LML in purported implementation of the surrender was instead an unauthorised member payment chargeable to tax under the provisions which I have already mentioned. The amount of the payment to LML was exactly the same as the amount of the previous payment from the Suffolk Life SIPP to the LML Pension. The assessment was addressed to Mr Clark in his personal capacity, as the person in respect of whom the payment had been made, and it related to the same tax year, 2009/10.
In those circumstances, the question, again shortly stated, is whether it is open to HMRC to rely on the assessment of 25 March 2014 as being broad enough in its scope to encompass the first step in the scheme, namely the transfer from the Suffolk Life SIPP of the same amount of money to the LML Pension. It is now common ground that, once the invalidity of the LML Pension had become apparent, HMRC could no longer rely on Mr Clark's surrender of his void benefits, and the consequential payment of the £2.115 million by the LML Pension to LML, as events which gave rise to an unauthorised member payment. Because the trusts of the LML Pension were void, it could no longer be treated as a validly registered pension scheme, nor could Mr Clark be treated as a member of it. On the other hand, the relevant movements of money had actually taken place, the remaining steps in the scheme had apparently been implemented, albeit with varying degrees of legal efficacy, and Mr Clark had in practice achieved his objective of being able to manage and invest the money as he wished, including by making profitable investments in the London residential property market. Indeed, the position today, more than a decade later, is that not a penny of the £2.115 million has been restored to the Suffolk Life SIPP, which was presumably terminated once its assets had been liquidated and transferred to the LML Pension in February 2010.
Mr Clark appealed against the assessment to the FTT (Judge Roger Berner and Ms Gill Hunter), who heard his appeal over three days in July 2016. By a decision released on 12 September 2016 (“the First FTT Decsion”, [2016] UKFTT 0630 (TC)), they found the relevant facts and determined a number of issues of law, including the question whether the initial transfer of the money by the Suffolk Life SIPP to LML Pension was a payment within the meaning of section 160(2) of the 2004 Act, on the assumption (as the FTT also held, and is no longer in dispute) that the trusts of the LML Pension were void for uncertainty, with the consequence that the money was at all material times held on a resulting trust for the Suffolk Life SIPP. The conclusion of the FTT, as stated in [140(2)], was that:
“the transfer of funds by Suffolk Life SIPP to LML Pension, which we have found was constituted under a trust void for uncertainty, although giving rise to a resulting trust in favour of Suffolk Life SIPP, was also such a payment [ i.e. a payment within section 160(2) of FA 2004].”
Having reached those conclusions, the FTT decided to adjourn the second (assessment) issue, on which it had heard only brief submissions, so as to give Mr Clark the opportunity, if he wished, to dispute the validity of the assessment in relation to the initial transfer of the money by the Suffolk Life SIPP to the LML Pension: see the First FTT Decision at...
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