Hart v Briscoe

JurisdictionEngland & Wales
CourtChancery Division

Revenue - Capital gains tax - Settled property - Power of advancement - Trustees exercising power to transfer settled property to trustees of settlement constituted ad hoc to receive them - Ad hoc settlement taking place of original settlement - Whether to be regarded as separate settlement - Whether trustees having distinct entity from trustees of original settlement - Whether “deemed disposal” giving rise to chargeable gain of settled property on trustees exercising power of advancement - Finance Act 1965 (c. 25), s. 25 (3) - Revenue - Capital gains tax - Settled property - Trustees exercise of power of advancement to advance settled property into new ad hoc settlement - Whether trustees of ad hoc settlement becoming “absolutely entitled” as against trustees of original settlement - Whether “deemed disposal” of settled property on exercise of power of advancement giving rise to chargeable gain - Finance Act 1965, s. 25 (3)

In 1955 certain property was settled on trusts for the benefit of the settlor's children, their spouses and issue. The trust deed gave the trustees a discretion to advance capital to one or all of the specified class of beneficiaries. In 1972 a further ad hoc settlement was made by the settlor whereby £1 was transferred to the trustees, being also the trustees of the original settlement, for the benefit of her two children, their spouses and children. The trustees in exercise of their power of advancement then declared they would thenceforth hold all the property that had been subject to the original settlement upon the trusts of the ad hoc settlement. The trustees, as trustees of the original settlement, were assessed to capital gains tax on the basis that on the transfer of the settled property in 1972 there had been a “deemed disposal” giving rise to a chargeable gain within the provisions of section 25 (3) of the Finance Act 1965F1. On appeal by the trustees against the assessment, the special commissioners held that the trusts expressed in the 1955 and 1972 declarations should be regarded as a single set of trusts so that section 25 (3) did not apply and they reduced the assessment to nil.

On appeal by the Crown: —

Held, allowing the appeal, (1) that whether a disposition of settled property pursuant to a power of advancement constituted a separate single settlement capable of bringing section 25 (3) into operation or merely a part of a single set of trusts so that the subsection did not operate, must be decided in the circumstances of each particular case, that where a power was exercised so that the appointed assets became vested in distinct trustees and new trusts were created to take the place of the original settlement then the original settlement did not continue to exist; and that as the original settlement was effectively brought to an end when the trustees exercised their power in 1972, the advanced assets becoming exclusively subject to the ad hoc settlement, a separate settlement was thereby constituted with trustees who were, albeit the same persons, a distinct entity from the trustees of the original settlement (post, pp. 838B–G, 839B–C).

(2) That the trustees of the ad hoc settlement did become “absolutely entitled as against the trustees” of the original settlement and that accordingly there was a “deemed disposal” giving rise to a chargeable gain with the meaning of section 25 (3) (post, p. 839D–E).

Hoare Trustees v. Gardner [1978] 2 W.L.R. 839 applied.

The following cases are referred to in the judgment:

Hoare Trustees v. Gardner [1978] 2 W.L.R. 839; [1978] 1 All E.R. 791

Muir or Williams v. Williams [1943] A.C. 468, H.L.(Sc.).

Pilkington's Will Trusts, In re [1964] A.C. 612; [1962] 3 W.L.R. 1051; [1962] 3 All E.R. 622; 40 T.C. 416, H.L.(E.).

The following additional cases were cited in argument:

Crowe v. Appleby [1976] 1 W.L.R. 885; [1976] 2 All E.R. 914; T.C. Leaflet No. 2561, C.A.

Hunter's Will Trusts, In re [1963] Ch. 372; [1962] 3 W.L.R. 1442; [1962] 3 All E.R. 1050.

Pexton v. Bell [1976] 1 W.L.R. 885; [1976] 2 All E.R. 914; T.C. Leaflet No 2854, C.A.

CASE STATED by the Commissioners for the Special Purposes of the Income Tax Acts.

On April 6, 1972, Dr. C. E. Briscoe and others, being the trustees of a settlement created in 1955 by Mrs. L. M. Barne, in exercise of an express power contained in the trust deed, executed a deed declaring that the settled property should thenceforth be held by them upon the trusts of an ad hoc settlement made by the settlor on that date. The trustees were assessed to capital gains tax for 1972–73 in the sum of £25,000. On appeal against the assessment, the commissioners upheld the trustees' argument that there was no “deemed disposal” of the settled property on April 6. 1972, falling with section 25 (3) of the Finance Act 1965, because the trusts expressed in the 1955 and 1972 declarations were to be regarded as a single set of trusts. They reduced the assessment to nil.

The Crown appealed.

The facts are stated in the judgment.

Peter Gibson for the Crown.

E. F. R. Whitehead for the trustees.

Cur. adv. vult.

November 24. BRIGHTMAN J. read the following judgment. This is an appeal by the Crown against a decision of the special commissioners discharging an assessment to capital gains tax. The point at issue is whether a deemed disposal takes place where the trustees of a settlement, pursuant to an express power (which for convenience can be called a power of advancement), transfer assets to the trustees of another settlement which has been constituted ad hoc for the purpose of receiving such assets.

The facts are as follows. By a conveyance made on January 6, 1955, Mrs. Barne granted land forming part of the Dudley estate in Norfolk to trustees upon trust for sale and to hold the proceeds of sale and the income until sale upon the trusts of another settlement of the same date, which I will call the head settlement. Mrs. Barne also assigned to the trustees of the head settlement a life interest in a personalty fund to which she was entitled under a certain will. The head settlement created trusts for the benefit of her issue, their spouses and other persons, subject to accumulation trusts during the first five years. The income was then directed to be held on discretionary trusts during a lengthy trust period. Clause 7...

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