GEOFFREY RICHARD HAWORTH, IAN FRANCIS LENAGAN, SG KLEINWORT HAMBROS TRUST COMPANY (UK) LIMITED v THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS [2024] UKUT 00058 (TCC)
| Jurisdiction | UK Non-devolved |
| Judge | Mr Justice Edwin Johnson & Judge Jonathan Cannan |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Published date | 04 March 2024 |
UT Neutral citation number: [2024] UKUT 00058 (TCC)
UT (Tax & Chancery) Case Number: UT/000086, 87, 89/2022
Upper Tribunal
(Tax and Chancery Chamber)
Hearing venue: The Rolls Building
7 Rolls Buildings
Fetter Lane
London
EC4A 1NL
Heard on: 30 November and 1 December 2023
Judgment date: 04 March 2024
Capital gains tax – treaty relief pursuant to the UK/Mauritius double taxation treaty – identifying the
place of effective management of a trust for the purposes of Article 4(3) – whether the FTT applied
the right test – HM Revenue and Customs v Smallwood [2010] EWCA Civ 778 applied
Before
Mr Justice Edwin Johnson
Judge Jonathan Cannan
Between
GEOFFREY RICHARD HAWORTH
IAN FRANCIS LENAGAN
SG KLEINWORT HAMBROS TRUST COMPANY (UK) LIMITED Appellants
and
THE COMMISSIONERS FOR HIS MAJESTY’S
REVENUE AND CUSTOMS
Respondents
Representation:
For the Appellant: James Rivett KC and Ben Elliott, counsel instructed by BDO LLP
For the Respondent: Christopher Stone and Hitesh Dhorajiwala, counsel instructed by the General
Counsel and Solicitor for His Majesty’s Revenue and Customs
1
DECISION
Introduction
This is an appeal against a decision of the First-tier Tribunal (Tax Chamber) released on 2
February 2022 (“the Decision”). The first and second appellants (“Mr Haworth” and “Mr Lenagan”)
are the settlors of separate family trusts which engaged in a tax planning arrangement known as the
“round the world” scheme. They hoped that the trustees of the family trusts would avoid capital gains
tax on disposals of shares on the flotation of a company called TeleWork Group Plc. It is now
common ground that the scheme was effective to achieve the capital gains tax savings if, amongst
other things, the family trusts became resident in Mauritius by the time of disposal. The scheme would
only be effective if the place of effective management (the “POEM”) of the trusts was in Mauritius.
A scheme of the same kind was considered by the Special Commissioners, High Court and
ultimately the Court of Appeal in HM Revenue and Customs v Smallwood [2010] EWCA Civ 778. It
was ineffective on the facts of that case because the Court of Appeal by a majority upheld the Special
Commissioners’ decision that the POEM of the trust at the material time was the UK and not
Mauritius. We shall have to consider the judgments in Smallwood in detail in due course.
The scheme was also relevant in the context of a claim for judicial review brought by Mr Haworth,
in which he challenged HMRC’s decision to issue a follower notice and an accelerated payment notice
based on the Court of Appeal’s decision in Smallwood. The judicial review went to the Supreme
Court in R (otao Haworth) v HM Revenue and Customs [2021] UKSC 25 which upheld the decision
to quash the follower notice and the accelerated payment notice.
The FTT in the present appeals held that the POEM of the trusts at the material time was the UK.
As a result of that finding, together with its findings on other issues which are not subject to appeal,
the FTT dismissed the appeals. The appellants appeal against the Decision with permission from the
FTT.
The present appeals turn on a single point of law. The appellants say that the FTT applied the
wrong test to identify the POEM of the trusts. It ought to have applied a test derived from the Court
of Appeal decision in Wood v Holden 78 TC 1. The context of Wood v Holden concerned identifying
the location of the central management and control of a company. However, there are statements in
the judgment of Chadwick LJ that the test for identifying the location of central management and
control of a company is in substance the same test as that for identifying the POEM of a company.
The Court of Appeal in Smallwood considered the POEM of a trust and it will be necessary for
us to closely consider both these judgments. Essentially, the appellants say that the FTT failed to
apply the test in Wood v Holden and misconstrued the reasoning of the Court of Appeal in Smallwood.
If that is right, the appellants say that the only conclusion open to the FTT on the facts as found was
that the POEM of the trusts at the material time was Mauritius. We should therefore set aside the
decision of the FTT and re-make it so as to allow the appeals against HMRC’s closure notices.
The FTT dealt with a number of issues which are no longer in dispute. The Decision stretches to
163 pages, much of which involves an analysis of the evidence and the FTT’s findings of fact.
Fortunately, for present purposes we can state the facts relatively briefly. Before doing so it will be
helpful to describe the context in which the issue arises and the legal framework which underpinned
the avoidance scheme.
Both parties acknowledged that if the FTT applied the wrong test for POEM, then the appeal
should be allowed and we should re-make the decision, identifying the POEM of the trusts based on
2
the FTT’s findings of fact. Neither party suggested that the matter should be remitted to the FTT to
make a further determination. We are content to proceed on that basis. At one stage Mr Rivett KC for
the appellants, submitted that even if the correct test was not that derived from Wood v Holden then
the FTT ought to have found that the POEM was in Mauritius. He did not pursue that argument, and
accepted that if we were to find that the FTT applied the right test, then the appeals should be
dismissed.
We are grateful to all counsel for their clear and helpful submissions, written and oral, and to
those instructing them. Mr Stone appeared as lead counsel for HMRC following the sad death of Mr
Timothy Brennan KC, who had appeared before the FTT.
The context in which the issue arises
The issue arises in the context of three separate family trusts. One family trust was established by
Mr Haworth as settlor in 1987 (“the GRH Trust”). Two family trusts were established by Mr Lenagan
as settlor in 1991 (“the IFL Trust” and the “S & A Trust”).
At the beginning of tax year 2000-01, the trustees of Mr Haworth’s GRH Trust and the separate
trustees of Mr Lenagan’s IFL Trust and S & A Trust were resident in Jersey. The trusts had been
established for many years. The GRH Trust held shares in Teleware Plc (“Teleware”). The IFL Trust
and the S & A Trust held shares in Workplace Systems Limited (“Workplace”). A proposal was being
considered whereby the businesses of Teleware and Workplace would be merged as TeleWork Group
Plc (“TeleWork”) and floated on the London Stock Exchange. The purpose of the tax planning was
to avoid capital gains tax on disposals of shares by the family trusts in connection with the flotation.
By way of brief summary, if the merger and flotation went ahead the scheme was intended to
operate by way of the following steps, each taking place in the tax year 2000-01:
(1) The Jersey trustees would retire and be replaced by trustees resident in Mauritius.
(2) Shares would be disposed of by the Mauritius trustees as part of the flotation.
(3) The Mauritius trustees would retire and be replaced by English trustees.
There were of course various decisions to be taken in connection with these steps, in particular in
relation to the merger, the flotation of TeleWork and the disposal by the family trusts of shares in
TeleWork. There was also the possibility of a disposal of the shares without a merger and flotation.
We consider the FTT’s findings in relation to the decision-making in more detail below.
There was no dispute as to the legal framework which underpinned the scheme and we can
describe it quite briefly. The following description is of the relevant provisions in 2000-2001. The
provisions were subsequently amended to prevent avoidance of tax using the round the world scheme.
At all material times, the effect of section 2 Taxation of Chargeable Gains Act 1992 (“TCGA
1992”) was that chargeable gains accruing to the trustees of a settlement who were UK resident for
capital gains tax (“CGT”) purposes during any part of a tax year were chargeable to tax on the trustees
directly in that year:
2(1) Subject to any exceptions provided by this Act, and without prejudice to sections 10 and 276, a person
shall be chargeable to capital gains tax in respect of chargeable gains accruing to him in a year of
assessment during any part of which he is resident in the United Kingdom, or during which he is ordinarily
resident in the United Kingdom.
To continue reading
Request your trial