Guild v Commissioners of Inland Revenue

JurisdictionUK Non-devolved
JudgeLord Keith of Kinkel,Lord Roskill,Lord Griffiths,Lord Jauncey of Tullichettle,Lord Lowry
Judgment Date27 February 1992
Judgment citation (vLex)[1992] UKHL J0227-1
Date27 February 1992
CourtHouse of Lords

[1992] UKHL J0227-1

House of Lords

Lord Keith of Kinkel

Lord Roskill

Lord Griffiths

Lord Jauncey of Tullichettle

Lord Lowry

Guild (Executor Nominate of the Late James Young Russell)
Commissioners of Inland Revenue
(Respondents) (Scotland)
Lord Keith of Kinkel

My Lords,


The late James Young Russell ("the testator"), who resided in North Berwick, died on 11 September 1982 leaving a will dated 7 April 1971 in which, after bequeathing a number of pecuniary legacies he provided as follows:

"And I leave the whole, rest, residue and remainder of my said means and estate to the Town Council of North Berwick for the use in connection with the Sports Centre in North Berwick or some similar purpose in connection with sport and the receipt of the Treasurer for the time being of the Burgh of North Berwick shall be a sufficient receipt and discharge for my Executor."


At the time of the testator's death the town council of North Berwick had ceased to exist as a result of the coming into force on 16 May 1975 of section 1(5) of the Local Government (Scotland) Act 1973. The provision of sporting and recreational facilities in North Berwick and the surrounding area became the responsibility of East Lothian District Council, set up under the Act. The Sports Centre in North Berwick had been the property of the Town Council and as a result of the Act it became vested in the District Council, which undertook its operation and management.


In these circumstances the present appellant, who is executor nominate under the testator's will, raised an action of multiplepoinding and exoneration in the Court of Session, in the course of which he lodged an administrative claim to be ranked and preferred to the fund in medio, being the residue of the testator's estate, for the purpose of applying to the court for approval of a cy-près scheme. Claims were also lodged by the testator's heirs on intestacy and the appellant's administrative claim was supported by East Lothian District Council. By interlocutor dated 5 April 1986 the Lord Ordinary, Lord Jauncey, ranked and preferred the appellant to the fund in medio in terms of his administrative claim, holding that the terms of the bequest of residue evinced a general charitable intention, and that there was nothing to indicate that the selection of the Town Council to administer the bequest involved delectus personae (Russell's Executor v. Balden, 1989 S.L.T. 177).


The appellant then presented a petition to the Inner House for approval of a cy-près scheme for the future administration of the bequest, and approval was duly granted on 14 June 1988. Nothing now turns on the terms of the cy-près scheme so approved.


Some time later, on 8 June 1990, the Commissioners of Inland Revenue, the present respondents, sent to the appellant a notice of determination to the effect that the transfer of value involved in the testator's bequest of residue was not an exempt transfer for the purposes of paragraph 10 of Schedule 6 to the Finance Act 1975. That was the Act, in force at the testator's death, which introduced capital transfer tax. There is no need for present purposes to consider the main provisions of the Act, since this appeal is concerned only with the exemption from the tax afforded to property which is given to charities. The exemption is contained in paragraph 10 of Schedule 6 to the Act, which provided so far as material:

"(1) Subject to the provisions of Part II of this Schedule, transfers of value are exempt to the extent that the values transferred by them-

(a) are attributable to property which is given to charities; and

(b) so far as made on or within one year of the death of the transferor, do not exceed £250,000.

(3) For the purposes of this paragraph property is given to charities if it becomes the property of charities or is held on trust for charitable purposes only."


Under section 51 of the Act "charity" and "charitable" are stated to have the same meanings as in the Income Tax Acts. Section 360(3) of the Income and Corporation Taxes Act 1970 provides:

"In this section "charity" means any body of persons or trust established for charitable purposes only."


The appellant appealed against the respondent's determination to the First Division of the Court of Session as the Court of Exchequer in Scotland, under paragraph 7(3) of Schedule 4 to the Act of 1975. On 15 March 1991 that court by a majority (Lord President Hope and Lord Mayfield, Lord McCluskey dissenting) refused the appeal and affirmed the determination. The appellant now appeals to your Lordships' House.


At one time it was being contended on behalf of the Crown that for the purpose of determining whether or not the exemption from tax of charitable bequests was available it was appropriate to have regard, not to the terms of the original bequest, but to the terms of the cy-près scheme approved by the court. That contention, if correct, would have resolved the issue in favour of the Crown, since it is conceded that the purposes of the cy-près scheme are not, strangely enough, charitable purposes only. The contention has, however, now been departed from. Before the First Division one of the arguments for the Crown was that during the period between the testator's death and the date when the cy-près scheme became operative the residue of his estate was not "held on trust" within the meaning of paragraph 10(3) of Schedule 6 to the Act of 1975. That argument was unanimously rejected by their Lordships of the First Division and was not renewed before your Lordships' House. Counsel for the respondents did, however, argue another point upon which they were unsuccessful in the First Division, namely that the first part of the bequest failed to pass the requisite test since the purposes of the Sports Centre in North Berwick were not charitable purposes only. Counsel for the appellant, for their part, sought to overturn the decision of the First Division upon the point upon which they had, by a majority, failed there, namely whether or not the second part of the bequest, by its reference to "some similar purpose in connection with sport," was of such width as to admit the possibility of the funds being applied to provide some benefit of a non-charitable nature.


A Scottish court, when faced with the task of construing and applying the words "charity" and "charitable" in a United Kingdom tax statute, must do so in accordance with the technical meaning of these words in English law: Commissioners for Special Purposes of the Income Tax v. Pemsel [1891] A.C. 531; I.R.C. v. City of Glasgow Police Athletic Association [1953] A.C. 380. For tax purposes, and for them alone, the English law of charity is to be regarded as part of the law of Scotland. Lord Jauncey's decision in the action of multiplepoinding proceeded upon the general law of Scotland as regards charities, and, as the Glasgow Police Athletic case shows, the decision under the corresponding English common law rules would have been different. However, the Glasgow Police Athletic case and that of I.R.C. v. Baddeley [1955] A.C. 572 led to the Recreational Charities Act 1958, and it is that Act which the appellant invokes in his claim to the charitable exemption from capital transfer tax.


Section 1 of the Act provides:

"(1) Subject to the provisions of this Act, it shall be and be deemed always to have been charitable to provide, or assist in the provision of, facilities for recreation or other leisure-time occupation, if the facilities are provided in the interests of social welfare:

Provided that nothing in this section shall be taken to derogate from the principle that a trust or institution to be charitable must be for the public benefit.

(2) The requirements of the foregoing subsection that the facilities are provided in the interests of social welfare shall not be treated as satisfied unless-

(a) the facilities are provided with the object of improving the conditions of life for the persons for whom the facilities are primarily intended; and

(b) either-

(i) those persons have need of such facilities as aforesaid by reasons of their youth, age, infirmity or diablement, poverty or social and economic circumstances, or

(ii) the facilities are to be available to the members or female members of the public at large.

(3) Subject to the said requirement, subsection (1) of this section applies in particular to the provision of facilities at village halls, community centres and women's institutes, and to the provision and maintenance of grounds and building to be used for purposes of recreation or leisure-time occupation, and extends to the provision of facilities for those purposes by the organising of any activity."


In the course of his argument in relation to the first branch of the bequest counsel for the respondents accepted that it assisted in the provision of facilities for recreation or other leisure time occupation within the meaning of subsection (1) of section 1 of the Act, and also that the requirement of public benefit in the proviso to the subsection was satisfied. It was further...

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