Jerome v Kelly (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 19 July 2001 |
| Date | 19 July 2001 |
| Court | Special Commissioners (UK) |
special commissioners decision
Dr Nuala Brice.
1. Mr Michael Jerome ("the appellant") appeals against an assessment to capital gains tax for the year ending on 5 April 1988. The assessment was dated 14 February 1992 and was in the sum of £195,148.50.
2. The assessment was raised because the Inland Revenue were of the view that on 16 April 1987, which was the date of the contract for the sale of certain land, the appellant and his wife were deemed to have disposed of all their interests in the land as at the date of the contract notwithstanding that, between the date of the contract and the date of completion, the appellant and his wife had assigned part of their beneficial interests in the land to the trustee of overseas settlements.
3. At the relevant time the relevant legislation was contained in s. 27(1) and 46(1) of the Capital Gains Tax Act 1979 ("the 1979 Act"). The relevant part of s. 27 provided:
Time of disposal and acquisition where asset disposed of under contract
27(1) Where an asset is disposed of and acquired under a contract the time at which the disposal and acquisition is made is the time the contract is made (and not, if different, the time at which the asset is conveyed or transferred).
4. The relevant part of s. 46 provided:
Trustees, nominees and personal representatives
46(1) In relation to assets held by a person as nominee for another person, or as trustee for another person absolutely entitled as against the trustee, … this Act shall apply as if the property were vested in, and the acts of the nominee or trustee in relation to the assets were the acts of, the person or person for whom he is the nominee or trustee (acquisitions from or disposals to him by that person or persons being disregarded accordingly).
5. Section 45(1) of the 1979 Act provided that the amount of capital gains tax on chargeable gains accruing to a married woman should be assessed and charged on her husband.
6. The appellant and his wife (with the appellant's brother) entered into a contract on 16 April 1987 for the sale of three plots of land. On that date the appellant and his brother were the trustees for sale of two plots and part of the third which they held on trust for the appellant, his brother and his wife as tenants in common in unequal shares. The appellant and his wife were given the remainder of the third plot on 1 May 1987 which they held as trustees for sale for themselves as beneficial joint tenants. On 28 December 1988 the appellant and his wife created two overseas settlements and on 15 December 1989 they entered into six assignments under which they assigned to the trustee of the overseas settlements one-half of their beneficial interests in the three plots. Completion of the contract for the sale of the three plots took place on three dates between November 1990 and December 1992.
7. The Inland Revenue argued that the appellant and his wife disposed of the property they then owned on the date of the contract (16 April 1987) and of the remainder of the third plot on 1 May 1987. The appellant argued that he and his wife made disposals on 16 April 1987 and 1 May 1987 only of the one-half of the beneficial interests which they still owned at the date of completion.
8. Thus the issue for determination in the appeal was whether the appellant and his wife made disposals on 16 April 1987 and 1 May 1987 of the whole of their beneficial interests in the property comprised in the contract (as argued by the respondent) or of the remaining one-half of their beneficial interests which had not been assigned to the trustee of the overseas settlements (as argued by the appellant).
9. The parties requested a decision in principle on the issue for determination in the appeal leaving the amount of the assessment to be determined at a later date.
10. The parties put in a statement of agreed facts. A blue agreed bundle of documents was produced.
11. From the evidence before me I find the following facts.
12. On 10 April 1981 Mrs Ethel May Philbrow (Mrs Philbrow) entered into a deed of gift under which she conveyed to her two sons, the appellant and Mr Oliver St Clair Jerome ("Oliver") 29.14 acres of agricultural land at Bridge Farm in Hampshire ("the property") as beneficial tenants in common in equal shares.
13. Thus after this deed of gift the legal title to the property was vested in the appellant and Oliver as trustees for sale and the beneficial interests were held by the appellant and Oliver as tenants in common in equal shares, namely as to: Oliver: one-half; the appellant: one-half.
14. On 26 March 1984 the appellant assigned to his wife, Mrs Mary Edith Jerome (Mrs Jerome), one third of his half share of the beneficial interest in the property.
15. Thus after this assignment the legal title to the property remained vested in the appellant and Oliver as trustees for sale but the beneficial interests were held as to: Oliver: three-sixths or one-half; the appellant: two-sixths or one-third; Mrs Jerome: one-sixth.
16. On 31 March 1987 the appellant assigned to his wife, in consideration of the sum of £55,000, a further one-sixth of his original half share of the beneficial interest in the property (i.e. one-twelfth).
17. Thus after this assignment the legal title to the property remained vested in the appellant and Oliver as trustees for sale but the beneficial interests were held as to: Oliver: six-twelfths or one-half; the appellant: three-twelfths or one-quarter; Mrs Jerome: three-twelfths or one-quarter.
18. On 16 April 1987 Oliver, the appellant and his wife as vendors entered into a contract ("the contract") with Conder Developments Ltd ("Conder"). Under the contract the vendors contracted to sell to Conder three plots of land ("the three plots"). The area of each plot and its price was:
| Plot 1 | 7.387 acres | £2,319,518 |
| Plot 2 | 1.25 acres | £392,500 |
| Plot 3 | 4.565 acres | £1,278,200 |
19. Plots 2 and 3, and all but 0.9 acres of plot 1, were part of the property comprised in the deed of gift of 10 April 1981. At the date of the contract the remaining 0.9 acres of plot 1 was owned by Mrs Philbrow. However, on 1 May 1987 Mrs Philbrow executed another deed of gift under which she gave to the appellant and his wife the remaining 0.9 acres of plot 1 ("the additional property") as beneficial joint tenants. Thus on 1 May 1987 the appellant and his wife held both the legal title and the beneficial interests in the 0.9 acres.
20. Thus, under the contract, the vendors of that part of the three plots which was originally comprised in the property (that is, plots 2 and 3 and all but 0.9 acres of plot 1) were the appellant and Oliver as trustees for sale and the vendors of the additional property were the appellant and his wife as trustees for sale.
21. Clause 9 of the contract provided:
The Jeromes, sell as Trustees but nevertheless shall in the Conveyance or Transfer enter into the same covenants as would be implied if they were selling as Beneficial Owners.
22. The contract provided that, in addition to the stated price, there should be an uplift if completion occurred after 31 December 1988. The contract also provided that completion was to be thirty days after 16 April 1994 or earlier if stipulated by Conder. There could be different completion dates for different plots. The contract further provided that Conder would apply for outline planning permission and that, if this were granted before 16 April 1994, then alternative completion dates for all the plots would apply.
23. On 11 November 1987 Conder assigned its benefit in the contract to Crest Estates Ltd ("Crest").
24. On 28 December 1988 the appellant and his wife jointly established two Bermudian settlements.
25. The first settlement was an interest in possession settlement. The appellant and his wife appointed Codan Trust Co Ltd to be the trustee and transferred to the trustee the sum of £100. The settlement declared that the trustee should stand possessed of the trust funds upon trust to pay the income to the settlor (defined as the appellant and his wife) during the lifetime of the settlor; then to pay the income to the widow of the settlor during her lifetime; and thereafter on trust for the children of the settlor equally; in default the trust fund was to be held on trust for remoter issue of grandparents of the settlor.
26. The second settlement was an accumulation and maintenance...
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