Inglewood (Lord) v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE FOX |
| Judgment Date | 16 December 1982 |
| Judgment citation (vLex) | [1982] EWCA Civ J1216-2 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 82/0507 |
| Date | 16 December 1982 |
[1982] EWCA Civ J1216-2
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL
(CIVIL DIVISION)
From: Mr Justice Vinelott (Revenue Paper), London.
Royal Courts of Justice,
Lord Justice Oliver (not present)
Lord Justice Fox
and
Lord Justice Goff.
82/0507
and
MR E.G. NUGEE, Q.C., and MR C.H. McCALL (instructed by Messrs. Trower, Still & Keeling) appeared on behalf of the Appellants (Plaintiffs).
MR JOHN KNOX, Q.C., AND MR J.F. MUMMERY (instructed by The Solicitor of Inland Revenue) appeared on behalf of the Respondents (Defendants).
This case is concerned with the ambit of the relief from Capital Transfer Tax (which we will call "CTT") granted in respect of certain accumulation and maintenance settlements by paragraph 15 of Schedule 5 to the Finance Act 1975. The question, which we are told has attracted some debate in the profession, can be stated, shortly, as follows. Paragraph 15(1)(a) of Schedule 5 limits the application of paragraph 15 to a settlement where ( inter alia) "one or more persons…will on or before obtaining a specified age not exceeding 25, become entitled to, or to an interest in possession in, the settled property…". Suppose that property is held upon trust for A (a minor) absolutely upon attaining the age of 25 but subject to a power in the trustees to revoke that trust and to appoint the property to other persons in such manner as the trustees determine. Can it be said, having regard to the power of revocation, that A "will" become entitled to the property on attaining 25?
We turn to the details of the matter. From 1894 to 1975 the main instrument of capital taxation was Estate Duty. It has been described as a voluntary tax. That goes too far but certainly it contained loopholes which enabled its impact to be much reduced. First, it was a death tax only and while gifts of property or dispositions of life interests were, in effect, taxable on death though made inter vivos that, in general, only applied to gifts or dispositions made during the statutory period (which was latterly 7 years before the death).
Secondly, discretionary trusts were an effective means of avoiding Estate Duty. There was normally no charge to Duty on the death of one of the discretionary objects leaving more than one other such object surviving him (since no property interest passed or determined by reason of such death); this was so though the deceased had been receiving part or even the whole of the income during his lifetime. The position was altered to some extent by the Finance Act 1969 which imposed a charge for duty on the death of a discretionary object which was geared to the proportion of income which had actually been paid out to him during the statutory period.
The Finance Act 1975 revolutionised the position. It absolished Estate Duty and created CTT, which was a tax not merely in relation to death but also to other dispositions of capital. Thus, a voluntary disposition of property inter vivos to an individual will attract CTT. Schedule 5 applies to settled property. It deals very differently with trust funds in which there is an interest in possession (for example where income is held upon immediate trusts for somebody during his life) and funds where there is no interest in possession (for example a discretionary trust where income is payable at the discretion of the trustees and subject thereto is accumulated). If a person has an interest in possession in settled property he is treated as if he were the owner of it for CTT purposes. If he dies or disposes of his interest or the interest determines, the property will be taxable as if he had made a voluntary transfer of it. If, however, there is no interest in possession in the settled property, a more severe regime (we will call it the discretionary trust regime") is applicable. Thus, (a) CTT is in effect made chargeable (at 30% of the full rate) every 10 years so long as no interest in possession subsists in the property in question (Schedule 5 paragraph 12) and (b) CTT will also be chargeable in respect of any property when e person becomes entitled to an interest in possession in it—for example by an outright appointment of capital (paragraph 6(2)).
These charges are to some extent mitigated in respect of settlements made before the 27th March 1974. In such cases paragraph 14 reduces the rate of tax payable on any capital distribution made before the 1st April 1980 out of a settlement to 10% of the full rate (if the distribution is made before the 1st April 1976). The percentage rises by annual steps of 2 1/2% to 20% in the year 1979–80 when the relief, as granted by the 1975 Act, ceases. The period was in fact subsequently extended. "Capital distribution" includes, in effect, the creation of an interest in possession in settled property wherein no such interest previously subsisted (paragraph 6(2)).
Paragraph 14 thus operates as a transitional provision enabling property to be removed from the discretionary trust regime at low rates of tax.
It is evident that the provisions of paragraphs 6 and 12 might operate harshly in relation to property which is held upon trust for a minor contingently upon attaining a specified age. Thus, in the common case of a trust for a child upon attaining 21 there will normally be no interest in possession subsisting in the property at any rate while the child is under 18. In the meantime the statutory power of maintenance conferred by section 51 of the Trustee Act 1925 would normally apply and the income could at the discretion of the trustees be applied for the child's benefit and subject thereto would be accumulated.
The consequences of there being no interest in possession would be twofold. First, the property would be subjected to the periodic charge. Secondly, when the child became entitled to an interest in possession there would be a charge under paragraph 6(2). That imposes a heavy burden upon maintenance and accumulation trusts.
Paragraph 15 gives relief from that. Paragraph 15(1) and (2) are in the following terms:
"(1) This paragraph applies to any settlement where—
(a) one or more persons (in this paragraph referred to as beneficiaries) will, on or before attaining a specified age not exceeding 25, become entitled to, or to an interest in possession in, the settled property or part of it; and
(b) no interest in possession subsists in the settled property or part and the income from it is to be accumulated so far as not applied for the maintenance, education or benefit of a beneficiary.
"(2) where this paragraph applies to a settlement—
(a) a payment made to a beneficiary out of the settled property or part concerned shall not be a capital distribution and a capital distribution shall not be treated as made under paragraph 6(2) above on a beneficiary's becoming entitled to an interest in the property or part; and
(b) no capital distribution shall be treated as made out of the property or part by virtue of paragraph 12 above at any time during the period for which the income is to be accumulated as mentioned in sub-paragraph (1)(b) above".
Paragraph 15(2) thus relieves a settlement to which 15(1) applies from charges under paragraph 6(2) and paragraph 12.
In the present case, by an Appointment of the 21st December 1964 ("the Appointment") the trust property was appointed:
"In Trust for such of the children of Lord Barnard now living or born before the Closing Date as shall attain the age of 21 years or marry under that age and in the following shares and proportions namely so that the eldest son of Lord Barnard to attain a vested interest under this present trust shall take 15 times the share of any of the other children of Lord Barnard and that subject as aforesaid the said children of Lord Barnard shall take in equal shares".
The Closing Date was defined as the date on which the first child of Lord Barnard to attain 21 or marry under that age should attain that age or marry under that age.
Clause 5 of the Appointment was in the following terms:
"5. NOTWITHSTANDING anything hereinbefore contained the Trustees may at any time or times by any deed or deeds executed before the Vesting Date revoke all or any of the trusts hereinbefore appointed concerning all or any part of the premises hereby appointed and (in lieu of the trusts so revoked) before the Vesting Date execute such new appointment (if any) in such manner as the Trustees shall conformably to the powers in that behalf conferred on the Trustees by the 1961 Appointment and the 1963 Conveyance think fit PROVIDED NEVERTHELESS that the Trustees' said powers of revocation and reappointment shall not extend to or be exercisable in respect of any income of the Trust Assets which may prior to the date of any such revocation or reappointment have been accumulated for the contingent benefit of any infant child or children of Lord Barnard…".
The Vesting Date was, for practical purposes, the expiration of 60 years from the 29th August 1962.
The power of revocation and re-appointment contained in Clause 5 (which authorised appointment among a wide class in such manner as the trustees, with the consent of Lord Barnard, thought fit) was released on the 29th March 1976. Lord Barnard had 4 daughters, the eldest of whom was Carolyn; she attained 21 on the 5th May 1975. The others were Elizabeth born in 1956, and 2 younger daughters born in 1962 and 1968 respectively. Lord Barnard has also had a son, Harry, who was born in 1959. None of the children had married at any date...
To continue reading
Request your trial
-
Egerton and Another. v Commissioners of Inland Revenue
...the word "will" in the phrase "will become entitled" imports a degree of certainty. The Court of Appeal inInglewood v. I.R. Commrs. WLR[1983] 1 W.L.R. 366 has recently held that this degree is not satisfied if the trust can be revoked and the fund reappointed to some other person at an age ......
-
Jackson v Secretary of State for Scotland
...simple way of describing the meaning of the word "will" was given by Fox L.J. in Inglewood (Lord) v. Inland Revenue CommissionersWLR [1983] 1 W.L.R. 366 at p. 371 where he said, "The meaning is, to some extent, one of impression and we feel that as a matter of the ordinary use of English th......
-
Jackson v Secretary of State for Scotland
...meaning. A more simple way of describing the meaning of the word "will" had been given by Lord Justice Fox in Inglewood (Lord) v IRCWLR ([1983] 1 WLR 366, 371) where he had said: "The meaning is to some extent one of impression and we feel that as a matter of the ordinary use of English the......
-
New World Order For Trusts?: The Meaning Of 'Prior Interest' In Section 32 (Video)
...aid to enable trust property to be used for the fullest benefit of a beneficiary with an interest in capital: see Lord Inglewood v IRC [1983] 1 WLR 366, 372-3 per Fox LJ, a judgment which contains a useful catalogue of ways in which the power has been But the power is not unrestricted: Unle......