Jamieson v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE SELLERS,LORD JUSTICE DONOVAN,LORD JUSTICE PEARSON |
| Judgment Date | 27 March 1962 |
| Judgment citation (vLex) | [1962] EWCA Civ J0327-6 |
| Court | Court of Appeal |
| Date | 27 March 1962 |
[1962] EWCA Civ J0327-6
In The Supreme Court of Judicature
Court of Appeal
On appeal from judgment of Mr. Justice Plowman.
Lord Justice Sellers
Lord Justice Donovan and
Lord Justice Pearson.
Mr. F. Heyworth Talbot, Q. C., and Mr. W. A. Bagnall, Q. C. (instructed by Messrs. Farrer & Co.) appeared on behalf of the Appellant in the first appeal.
Mr. F. Heyworth Talbot, Q. C., and Mr. E.I. Goulding, Q. C. (instructed by Messrs. Farrer & Co.) appeared on behalf of the Appellant in the second appeal.
Sir Milner Holland, Q. C., Mr. E. Blanshard Stamp and Mr. Alan S. Orr (instructed by the Solicitor of Inland Revenue) appeared on behalf of the Respondents.
Both these appeals, which were heard together, are against assessments to surtax for specified years prior to the passing of the Finance Act, 1958, which admittedly, if it had been operative over the relevant periods, would have freed the Appellants from the present claims. The Special Commissioners found in favour of the Crown and their findings were upheld and confirmed by Mr. Justice Plowman.
In each case there is a settlement under which funds have been transferred to trustees for the benefit of the children of the settlor and remoter issue, and during the relevant years the trustees have accumulated all the income arising from the funds.
The question for decision is whether the settlements are irrevocable, as the Appellants submit, and so avoid liability to the tax claimed, or are not irrevocable, as the learned Judge has held, and the assessments are correct.
Part XVIII, Chapter II, of the Income Tax Act, 1952, deals with settlements on children generally, and by sections 397 and 398 therein the income, in this case accumulated in the hands of the trustees, would fall to be treated as the income of the settlor unless, as the Appellants allege, the settlements are ones to which section 398 (2) applies.
That section provides, as far as is here material: Where any income is dealt with as mentioned in subsection (1) of this section by virtue or in consequence of a settlement to which this Chapter applies, being a settlement which, at the time when the income is so dealt with, is an irrevocable settlement –
"(a) the provisions of subsection (1) of this section shall not apply to that income" –.
The vital saction for construction and application is section 399: For the purposes of this Chapter a settlement shall not be deemed to be irrevocable if the terms thereof provide -
(b) for the determination of the settlement by the act or on the default of any person…. Provided that a settlement shall not be deemed to be revocable by reason only -
"(ii) that it provides for the determination of the settlement as aforesaid in such a manner that the determination will not, during the lifetime of any such child as aforesaid, benefit any person other than such a child, or the wife, husband or issue of such a child."
For the purposes of our decision it is sufficient to refer to Major Jamieson's settlement alone, as was done at the trial and in argument before us.
It was dated the 9th August, 1950, when the settlor had one child born on the 20th February, 1950, and expresses the settlor's desire to make the settlement for the benefit "of his said child and future born children of the settlor and otherwise as hereinafter mentioned".
It recites that the settlor has paid a sum of money to the trustees of the settlement, and clause 2 provides for its investment.
Clause 3 is as follows: The Trustees shall stand possessed of the said sum of Ten thousand pounds and of the investments and property for the time being representing the same (hereinafter called 'the Trust Fund') and of the income thereof upon the following trusts:-
"(1) In trust for all or such one or more exclusively of the others or othor of the following class of persons (that is to say)the issue (including children hereafter to be born and issue more remote than children) of the Settlor and the wives husbands widows or widowers (whether or not remarried) of such issue in such shares if more than one and either absolutely or for such successive or other interests or with such trusts and provisions for their respective benefit at the discretion of the Trustees or any other persons and generally in such manner for the benefit of the said class or any of them as the Trustees shall from time to time or at any time by any deed or deeds revocable or irrevocable (with due regard to the rule against perpetuities) appoint provided that no such appointment may be made or revoked whether wholly or in part after the perpetuity date and Provided Further that the Trustees may at any time or times by deod wholly or partially release or restrict the foregoing power of appo intment."
Then there are two other subsections to that clause, but there is no occasion for me to read them.
There is no power of revocation expressed in the settlement, and the Appellant wished to keep open the point that section 399 could not be invoked by the Crown. It was not regarded as open in this Court because of ( Jenkins v. C. I. R. 26 Tax Cases, page 265), and the point was not argued.
Mr. Justice Plowman applies to this case the decision and reasoning of ( Kenmare v. C. I. R. 1958 A. C., 267), and his judgment makes the closeness of the application apparent. It is not in itself conclusive, for the nmare case arose under the Finance Act, 1938, and involved the considerationand application of section 38 (2) of that Act, which is now replaced in the same terms by section 404 (2) of the Income Tax Act, 1952, in Chapter III of the same part as section 399, which Chapter deals with settlements generally.
The subsection is as follows: (2) If and so long as the terms of any settlement are such that -
(a) any person has or may have power, whether immediately or in the future, and whether with or without the consent of any other person, to revoke or otherwise determine the settlement or any provision thereof; and
(b) in the event of the exercise or the power, the settlor or the wife or husband of the settlor will or may become beneficially entitled to the whole or any part of the property then comprised in the settlement or of the income arising from the whole or any part of the property so comprised
"any income arising under the settlement from the property comprised in the settlement in any year of assessment or from a corresponding part of that property, or a corresponding part of any such income, as the case may be, shall be treated for all the purposes of this Act as the income of the settlor for that year and not as the income of any other person."
The words "If and so long as the terms of any settlement are such that in the event of the exercise of the power" are to be compared with the words under section 399: "if the terms thereof provide - for the determination of the settlement by the act - of any person".
In the Kenmare case the terms of the settlement were such that the settlement could, in reasonable possibility, work itself out to an end by successive withdrawals of the trust fund so as to exhaust it in the lifetime of the settlor.
As in that event there would be nothing left for the trusts of the settlement to operate on, the settlement could, it was held, be determined.
If a position of determination could be reached under the present settlement, is there a difference between "if the terms - are such" and "if the terms - provide", and between "in the exercise of the power" and "by the act - of any person", which act could, in the present case, be the exercise of a power?
Under clause 3 the trustees could in their discretion appoint absolutely to a person sui juris the whole of the settled funds. If that were done, the position would be brought about "by the act - of any person". Would it determine the settlement? In effect it would. The appointee would become absolutely entitled to the funds, and if he did not seek to acquire them, the trustees could rid themselves of them. The settlement would be no longer effective as a settlement, and any further step which would have to be taken to transfer the funds would be merely consequential on the determination of the trust and not in itself or in any real sense a determination of the settlement, which would have been already determined by the act of appointment. In support of this view the Crown relied on Hamilton- Russell's Executors v. C. I. R. ((1942) 25 Tax Cases, 200). At the age of 21 the eldest son of a settlor became absolutely entitled to the trust fund. He did not avail himself of the right until some 10 years later, during which period the trustees had accumulated the income. He then instructed the trustees to discontinue any further accumulation and to pay the income to him in future. It was held that the income so accumulated was taxable as being the beneficiary's income throughout, Lord Justice Luxmoore in the Court of Appeal saying "Obviously, in the present case, neither G. L. Hamilton- Russell nor the trustees of the settlement could, after G. L. Hamilton- Russell attained his majority, have insisted on the continuation of the trusts. The trustees could at any time after the happening of that event, even though G. L. Hamilton- Russell had requested them to continue the accumulations, have refused to do so, and, if he had refused to accept the transfer of the trust funds, could have paid them into Court; just in the same way as G. L. Hamilton- Russell could, contrary to the wishes of the trustees, have insisted on a transfer to himself of the whole of the trust funds. The reason why the trusts...
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Jamieson v Commissioners of Inland Revenue
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Jamieson v Commissioners of Inland Revenue
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