Ingram and Another v Commissioners of Inland Revenue
Jurisdiction | England & Wales |
Judgment Date | 29 July 1997 |
Date | 29 July 1997 |
Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Nourse, Evans and Millett L JJ.
Robert Venables QC and Robert Grierson (instructed by Norton Rose) for the executors.
Edward Nugee QC and Michael Furness (instructed by Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
A-G v Earl Grey ELRELRELR[1898] 1 QB 318 (Div Ct); [1898] 2 QB 534 (CA); [1900] AC 124 (HL)
A-G v Worrall ELR[1895] 1 QB 99
Belaney v Belaney (1867) 2 Ch App 138
Brockbank, Re ELR[1948] Ch 206
Cochrane, Re [1905] 2 IR 626 (Div Ct); [1906] 2 IR 200 (CA)
Commr of Stamp Duties of New South Wales v Perpetual Trustee Co LtdELR[1943] AC 425
Farrar v Farrars Ltd ELR(1888) 40 ChD 395
Furniss (HMIT) v Dawson ELRTAX[1984] AC 474; [1984] BTC 71
Gilbert v Commr of Internal Revenue UNK(1957) 248 F 2d 399
Helvering v Gregory UNK(1969) F 2d 809 (2nd Cir)
Henderson v Astwood ELR[1894] AC 150
Hirachand Punamchand v Temple ELR[1911] 2 KB 330
HM Advocate v M'Taggart Stewart (1906) 43 SLR 465
Ingle v Richards (No. 1) ENRENR(1860) 28 Beav 361; 54 ER 405
IR Commrs v McGuckian TAX[1997] BTC 346
Kildrummy (Jersey) Ltd v IR Commrs TAX[1990] BTC 8094
Knetsch v United States (1960) 364 US 361
Lang v Webb (Commr of Taxes for Victoria) UNK(1912) 13 CLR 503
Lewis v Hillman ENR(1852) 3 HLC 607
Munro v Commr of Stamp Duties (NSW) ELR[1934] AC 61
Nichols v IR Commrs WLRWLR[1974] 1 WLR 296 (ChD); [1975] 1 WLR 534 (CA)
Oakes v Commr of Stamp Duties of New South Wales ELR[1954] AC 57
Ramsay (WT) Ltd v IR Commrs ELR[1982] AC 300
Regent Oil Co Ltd v JA Gregory (Hatch End) Ltd ELR[1966] Ch 402
Rye v Rye ELR[1962] AC 496
St Aubyn v A-G ELR[1952] AC 15
St Edmundsbury and Ipswich Diocesan Board of Finance v Clark (No. 2)WLR[1975] 1 WLR 468
Walsh v Lonsdale ELR(1882) 21 ChD 9
Whickelow Ltd, Re George WLR[1954] 1 WLR 5
Williams v Scott ELR[1900] AC 499
Inheritance tax Avoidance scheme Potentially exempt transfers Transfer by estate owner (now deceased) of freehold to solicitor as nominee Property leased back to transferor by solicitor Freehold conveyed subject to leases by solicitor to trustees Whether gift with reservation Whether leases invalid and unenforceable Whether property enjoyed to the entire exclusion of transferorFinance Act 1986 article 102Finance Act 1986, s. 102(1)(b)
This was an appeal by the Revenue from a decision of Ferris J ([1995] BTC 8010) in favour of the executors of Lady Ingram allowing an appeal against a determination to inheritance tax.
The determination was made on the footing that leases granted to Lady Ingram by her solicitor who held freehold property for her as nominee were invalid and that her estate was liable to tax on the unencumbered value of the freeholds which the nominee had transferred to trustees for her intended beneficiaries.
Lady Ingram was the owner of Hurst Lodge, near Twyford, Berkshire ('the property'). For the purpose of avoiding inheritance tax she wished to settle the property for the benefit of members of her family subject to her retaining the right of occupation, or receiving the rents of those parts which were let. On 29 March 1987 she transferred the property to her solicitor as nominee for herself. On March 30 at Lady Ingram's direction, the solicitor purported to grant her two leases, which together comprised the whole property, for 20 years free of rent. Each of the leases contained covenants by Lady Ingram, inter alia, against assignment. On 31 March, again at Lady's Ingram's direction, the solicitor purported to transfer the freehold of the property, subject to the leases, to trustees, who on the same day executed two declarations of trust, subject to the leases, under each of which the property was to be held for the benefit of Lady Ingram's intended beneficiaries. Lady Ingram could not have benefited under the trust. She died on 3 February 1989.
Ferris J held that the leases granted to Lady Ingram were a nullity since a nominee could not contract with or grant a lease to his principal. However, when the trustees executed the declarations of trust, she had taken an equitable interest in the property equivalent to that which she would have taken if the leases had been valid, simultaneously with the freehold reversion vesting in the beneficiaries. Therefore the gift had only been the freehold reversion, subject to the leases, which had been enjoyed to the entire exclusion of Lady Ingram and of any benefit to her by contract or otherwise. Accordingly the transaction had been outside the scope of the Finance Act 1986 article 102Finance Act 1986, s. 102(1)(b) and the property was not to be treated as having been included in Lady Ingram's estate at the time of her death.
Held, allowing the Revenue's appeal by a majority:
1. Since a nominee could not grant a lease to his principal, the covenants by Lady Ingram creating real obligations to the solicitor could only have been held by him for her benefit. Therefore they were unenforceable and it followed that the leases were a nullity: Kildrummy (Jersey) Ltd v IR CommrsTAX [1990] BTC 8094applied.
2. Since the leases were a nullity, the solicitor had held the unencumbered freehold, and when he conveyed the freehold interest to the trustees they had likewise taken the freehold unencumbered. However, being volunteers, the trustees had taken subject to an obligation in equity to give effect to the intention to grant the leases.
3. Lady Ingram had been entitled to a right of possession under the trustees' equitable obligation towards her, and the trustees only became subject to that obligation after the unencumbered freehold interest had been vested in them. Therefore the freehold interest in the property had not been enjoyed to the exclusion of Lady Ingram and accordingly the transactions amounted to a gift with reservation and fell within theFinance Act 1986 section 102 subsec-or-para (1)s. 102(1)(b) of the Finance Act 1986.
Per Millett LJ dissenting: A nominee could grant an effective lease to his principal and accordingly the leases granted by the solicitor to Lady Ingram were effective. The transaction did not contravene the rule that there had to be two parties to a contract or a lease. There were two parties to the contract. Although they were not independent parties dealing with each other at arms length, that did not render the leases a nullity. After the leases had been granted and before the execution of the declarations of trust the covenants in the leases were in abeyance. Lady Ingram had succeeded in separating the leases from the freeholds, which were different in ownership. Therefore the leases were not invalid and the transaction was not within Finance Act 1986 section 102 s. 102 of the Act. However, even if the leases had been invalid, the subject matter of the gift would have been the freehold reversion expectant on the lease and not the unencumbered freehold. The beneficiaries would have been given only what was left after the trustees had fulfilled their obligations, binding in equity, to grant the leases. Therefore the gift, the freehold reversion, was enjoyed to the entire exclusion of Lady Ingram.
On the last three days of March 1987 Jane Lindsay Ingram, the widow of Sir Herbert Ingram Bt, carried into effect a series of voluntary transactions whose object was to avoid or reduce the inheritance tax prospectively payable on her death in respect of her family home, Hurst Lodge, near Twyford in Berkshire, while enabling her to continue to live there free of rent under a term of years which was likely to exceed her lifetime. Lady Ingram died on 3 February 1989. Shortly stated, the question for decision is whether the disposition of the freehold subject to the term of years was a gift with reservation, having the effect of cancelling the reduction in inheritance tax which would have been achieved had there been no such reservation. Ferris J has answered that question in the negative and in favour of Lady Ingram's executors. The Crown appeals to this court. The outcome of the appeal depends largely on estate duty authorities decided between 1898 and 1974 which it must have been generally expected would cease to have any application after the replacement of that duty by capital transfer tax in 1975.
The decision of Ferris J is reported at [1995] BTC 8010. Since it is essential to a decision of the appeal that the nature and effect of the transactions should be carefully analysed, I will describe them in my own words. In order to do that I must start with the background facts, most of which are deposed to in an affidavit of Lady Ingram's solicitor, Mr Michael MacFadyen of the firm of Norton Rose, who had advised her and her family in relation to their tax affairs since about 1980 and now acts for her executors, Michael Warren Ingram and Christopher David Palmer-Tomkinson.
At the end of March 1987 Lady Ingram was 73 years of age. By a deed of gift made in 1946 her father, James Edward Palmer-Tomkinson, had conveyed to her the freehold of Hurst Lodge, together with some adjoining and adjacent land, all of which was unregistered and amounted in the aggregate to 61 acres or thereabouts. In 1986 Lady Ingram sought Mr MacFadyen's advice as to making lifetime gifts of this property and a further area of land of about 46 acres in the neighbouring parish of Whistley Green, the title to which was registered, in favour of her three daughters and the children of her deceased son. She was aware that, with the introduction by the Finance Act 1986Finance Act 1986 of transfers which were potentially exempt from inheritance tax, it could well be advantageous to the donees for her to make lifetime gifts in their favour. At the same time, she wished to retain actual occupation of the land or, in the case of let property, the right to receive the rents. After taking advice from counsel specialising in...
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