Guild v Commissioners of Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 15 March 1991 |
| Date | 15 March 1991 |
| Court | Court of Session |
Court of Session (Inner House).
Lord President Hope, Lord Mayfield and Lord McCluskey.
Mr JE Drummond Young QC and Mr AJ Hamilton (instructed by Guild & Guild WS) for the executor.
Mr DRA Emslie QC and Mr JW McNeill (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the opinions:
Davidson's Trustees v Arnott SC1951 SC 42
Fogo's Judicial Factor v Fogo's Trustees ENR1929 SC 546
Fulton v Fulton & Ors (1864) 2M 893
Gibson's Trustees, Petitioners SC1933 SC 190
IR Commrs v Baddeley ELR[1955] AC 572
IR Commrs v Glasgow Police Athletic Association TAX(1953) 34 TC 76
IR Commrs v McMullen & Ors TAX(1980) 54 TC 413
Lindsay's Trustees v Lindsay SC1938 SC 44
Nottage, Re ELR[1895] 2 Ch 649
Russell's Executor v Balden & Ors 1989 SLT 177
Scottish Flying Club v IR Commrs TAX(1935) 20 TC 1
Capital transfer tax - Bequest for sporting purposes - Charitable purposes - Residue of estate to be held by local authority for benefit of sports centre or similar purposes - Local authority no longer in existence at date of death - Cy-près scheme approved which was not exclusively charitable - Whether bequest exempt - Whether residue held on trust by executor between death and approval of scheme - Whether for charitable purposes only - section 1 subsec-or-para (1) section 1 subsec-or-para (2)Recreational Charities Act 1958, sec. 1(1), (2) - Finance Act 1975 schedule 6 subsec-or-para 10Finance Act 1975, Sch. 6, para. 10. (replaced byInheritance Tax Act 1984 section 23 subsec-or-para (1)Inheritance Tax Act 1984, sec. 23(1)).
This was an appeal directly to the Court of Session by the executor of a will against a determination to capital transfer tax claiming that a bequest of residue was a charitable bequest exempt from tax within theFinance Act 1975 schedule 6 subsec-or-para 10Finance Act 1975, Sch. 6, para. 10.
A testator left the residue of his estate to the town council of North Berwick for use in connection with the sports centre in North Berwick or for "some similar purpose in connection with sport". By the date of his death in 1982 the town council of North Berwick was no longer in existence as a result of the local government reorganisation in 1975. The court held on an application by the executor that the bequest did not lapse and subsequently in 1988 a cy-près scheme was approved by the court. The scheme provided not only for the administrative machinery to be altered by the appointment of trustees to administer the bequest but also for additional purposes to promote sport in and around North Berwick which were admittedly not exclusively charitable.
The executor of the will appealed against the determination on the ground that between the testator's death and the vesting in trustees pursuant to the cy-près scheme, he held the residue on trust for charitable purposes only, and the bequest was therefore exempt by virtue of Finance Act 1975 schedule 6 subsec-or-para 10Finance Act 1975, Sch. 6, para. 10. The executor claimed that both limbs of the bequest were charitable under the section 1Recreational Charities Act 1958, sec. 1.
It was common ground that the relevant time for determining the charitable nature of the bequest was immediately before the death of the testator.
The Revenue contended that the executor did not hold the residue on trust but merely in an administrative capacity until the cy-près scheme came into into effect in 1988. Moreover, the bequest exceeded the scope of section 1sec. 1 of the 1958 Act. That view was reinforced by the fact that the cy-près scheme, which was intended to reflect the intention of the testator, included objects that were not exclusively charitable.
Held, dismissing the executor's appeal:
1. The executor was under a duty to take such steps as were necessary to bring the bequest into effect. The effect of the gift was that as from the date of death the residue was held on trust for the purposes described in the bequest. The executor therefore held the residue in a fiduciary capacity until the scheme took effect. (Fulton v Fulton & Ors (1864) 2M 893 at p. 900 per Lord Cowan applied.)
2. The facilities provided by the sports centre were facilities within section 1 subsec-or-para (1)sec. 1(1) of the 1958 Act. They were provided for the public benefit and, being available to the public at large, were in the interests of social welfare within section 1 subsec-or-para (2)sec. 1(2). However, (Lord McCluskey dissenting) the words "some similar purpose in connection with sport" without any restriction might include purposes which were not charitable. The bequest was therefore not "for charitable purposes only" within Finance Act 1975 schedule 6 subsec-or-para 10Sch. 6, para. 10 of the 1975 Act.
Per Curiam: A facility might be provided in the interests of social welfare whether or not the persons for whom it was provided were in any way deprived or disabled. (IR Commrs v McMullen & Ors (1980) 54 TC 413 at p. 433, per Bridge LJ approved.)
Lord President Hope: This is an appeal under Finance Act 1975 schedule 4 subsec-or-para 7Sch. 4, para. 7(3) to theFinance Act 1975 against a notice of determination dated 8 June 1990 which was made by the Commissioners of Inland Revenue in respect of a charge to capital transfer tax. The notice was issued in relation to the transfer of value which was deemed to have occurred underFinance Act 1975 section 22 subsec-or-para (1)sec. 22(1) of the Act on the death of the late James Young Russell on 11 September 1982. It stated that such part of that transfer of value as was attributable to the property comprised in the bequest of his residuary estate in his will dated 7 April 1971 was not an exempt transfer for the purposes of Finance Act 1975 schedule 6 subsec-or-para 10Sch. 6, para. 10 to the 1975 Act. In terms of that paragraph transfers of value which are attributable to property which is given to charities are exempt from capital transfer tax, to the extent of the value transferred by the gift. The point at issue in this case depends on the meaning and effect of Finance Act 1975 schedule 6 subsec-or-para 10para. 10(3) of the Schedule which provides:
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.
The application of that provision to the bequest of residue in this case raises two questions on which we listened to a careful and interesting argument. The first is whether, in view of a defect in the bequest which led to delay until it could receive effect, the residue can be said to have been held on trust for charitable purposes as from the date of death of the deceased. The second is whether, having regard to the terms of the residue clause, the bequest can be said to have been for charitable purposes only.
The residue clause was in these terms:
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.
The deceased died on 11 September 1982, and the town council of North Berwick was no longer in existence at that date. This was because, as a result of section 1 subsec-or-para (5)sec. 1(5) of the Local Government (Scotland) Act 1973, all local government areas existing immediately before 16 May 1975 including small burghs, such as North Berwick, ceased to exist on that date. All property formerly vested in the town council was transferred to and vested in East Lothian District Council or Lothian Regional Council on that date according to the functions for which it was held. The provision of sporting and recreational facilities in North Berwick and the surrounding area became the responsibility of the district council, with the same statutory powers, duties and responsibilities as the town council formerly possessed. Thus the operation and management of the sports centre in North Berwick ceased to be a function of the town council on that date and became a function of the district council, and since there was no longer a treasurer for the time being of the burgh of North Berwick there was no one to give a sufficient receipt and discharge to the executor for the bequest. The deceased had made no alteration to his will to take account of these events, and when he died the question arose as to whether the bequest of residue to the town council for these purposes had lapsed. An action of multiplepoinding was raised by the executor in order to resolve these questions, in which claims were lodged by the heirs in intestacy on the one hand and by the executor on the other. The executor's claim was an administrative claim so that he might apply to the court for the approval of a scheme for the future administration of the bequest, and it was supported by East Lothian District Council and by the North Berwick Community Council. In an opinion reported as Russell's Executor v Balden & Ors 1989 SLT 177, Lord Jaunceyheld that the bequest disclosed a general charitable intention and that there was nothing in the will to suggest that the deceased wished the town council and no other body who might succeed them to administer the bequest. In the result it was held not to have fallen into intestacy, and he ranked and preferred the executor to the fund in mediofor the purposes of his administrative claim.
In due course the executor presented a scheme to the Inner House for its approval. All that was necessary in this case, since the sports centre continued to exist in North Berwick and there was thus no obvious failure of the essential purpose of the bequest, was to make good the defect in the machinery for its operation which had arisen due to the...
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Guild v Commissioners of Inland Revenue
...the will of the late James Young Russell against a decision of a majority of the First Division of Inner House of the Court of Session ([1991] BTC 8055) affirming a notice of determination to capital transfer tax on the ground that a bequest of residue was not held for charitable purposes o......
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