Howard de Walden (Lord) v Commissioners of Inland Revenue

JurisdictionEngland & Wales
CourtCourt of Appeal

Revenue - Income tax - Avoidance of taxation - Transfer of assets to company abroad - Assets transferred sole assets of foreign company - Transferor liable to be assessed in respect of whole income of company - Finance Act, 1936 (26 Geo. 5 & 1 Edw. 8, c. 34), s. 18.

As the result of a series of transactions extending over a number of years valuable assets belonging to the appellant and consisting of shares in and debts owing to an English company became vested in four Canadian companies, the whole of the assets of the Canadian companies being traceable to this source. The appellant did not dispute that the transactions were of the kind described in the preamble to s. 18 of the Finance Act, 1936 namely, to avoid income tax by the transfer of income to persons abroad, and he admitted that their sole purpose was to avoid liability to taxation. The only interests which, during the relevant periods, were held by the appellant in respect of the consideration payable under these transactions, consisted of (1.) an interest in certain notes issued to him by the Canadian companies; (2.) part of certain sums of cash on deposit with the Canadian companies and repayable on demand, the remainder being sums actually deposited by him; (3.) a small number of shares in two of the companies; and (4.) certain annuities payable to himself or his wife by one or other of the companies. The remainder of the consideration or what represented it he had effectively put out of his control. The appellant admitted that the whole of the income of the Canadian companies would be chargeable to income tax if it were his income received by him in the United Kingdom. The annuities and the interest element in each payment of the notes had borne tax in the usual way. The assessments against which he appealed were based on the view that the whole of the income of the Canadian companies was, under s. 18 of the Finance Act of 1936, to be deemed to be the income of the appellant for all the purposes of the Income Tax Acts:—

Held, affirming Macnaghten J., that the appellant had “power to enjoy” the whole income of the Canadian companies within the meaning of s. 18 of the Finance Act, 1936, and that, therefore, he was liable to be assessed to income tax and sur-tax in respect thereof.

APPEAL from Macnaghten J.

The appellant appealed to the Special Commissioners of Income Tax against assessments to sur-tax (a) in the sum of 351,044 l. for the year ended April 5, 1936, and (b) in the sum of 350,000 l. for the year ended April 5, 1937. He also appealed against an assessment to income tax in the sum of 150,000 l. for the year ended April 5, 1937. The appellant was ordinarily resident in the United Kingdom. In December, 1918, an English private company was registered to acquire part of an estate in London belonging to the appellant. The capital of the private company was 3,500,000 l., divided into 3,000,000 ordinary and 500,000 preference shares of 1&L each. In 1919 and 1920 the appellant sold the estate to the company for 2,120,000 shares and 885,544 l. cash. In August, 1922, the private company was converted into a public company with the same capital. In September, 1922, the appellant sold his life interest in other property in London to the company for 590,000 shares and 152,277 l. cash. Later, he transferred 2,510,100 shares in the company, a debt of 760,897 l. 10s. owing to him by the company, 450,000 shares in a company incorporated in Kenya, parts of his estates in Scotland, a further part of his estate in London and other assets to various Canadian companies in Canada. These were the sole assets of the Canadian companies. As a result of these transfers the appellant was entitled to receive shares in the Canadian companies, an annuity of 20,000 l. until December 31, 1936, and thereafter a life annuity of 50,000 l., 320,000 l. payable in instalments, a guarantee to pay a life annuity of 15,000 l. to his wife as from the date of his death, and a bequest not exceeding 250,000 l. to his children, if such bequest should be contained in his will. A life annuity of 5000 l. was also payable to the appellant's wife as from the date of his death. In April, 1923, the appellant sold 5000 shares in one of the Canadian companies to another of the Canadian companies for $1,000,000. In May, 1923, the appellant by deed of gift, transferred to a Canadian trustee company 25,000 shares in one of the Canadian companies to be held by the trustee company as trustees for his son, the income thereof to be accumulated until his son attained the age of twenty-one years. The appellant was also to be paid a further life annuity of 10,000 l. by one of the Canadian companies. In May, 1924, he sold 160,000 shares in the English company and 7000 shares in one of the Canadian companies to another Canadian company for 125,000 l. cash, payable by yearly instalments of 5000 l. and $765,000 in cash, to be applied in paying a balance unpaid in respect of shares in that company held by the appellant, and, as a further consideration, a life annuity of 10,000 l. In September, 1927, the appellant transferred 2500 shares in one of the Canadian companies to the English company in return for the English company undertaking to pay bequests in his will up to 250,000 l. for the benefit of his children. In 1927 and 1930 he sold the annuity of 20,000 l. payable...

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19 cases
1 books & journal articles
  • General Anti-Avoidance Rule
    • Canada
    • Irwin Books Income Tax Law. Second Edition Part VI
    • 16 Junio 2012
    ...identify this principle with Lord Tomlin’s speech in the House of Lords in IRC v Duke of Westminster : 8 Lord Howard de Walden v IRC , [1942] 1 KB 389 at 397 (CA) (taxpayer who transferred assets to a foreign Canadian company liable for income tax and surtax as he had the “power to enjoy” t......

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