The Marquess Of Linlithgow And The Earl Of Hopetoun V. The Commissioners For Her Majesty's Revenue And Customs Under Section 222 Of The Inheritance Tax 1984
| Jurisdiction | Scotland |
| Judge | Lord Reed,Lord Marnoch,Lord Bracadale |
| Judgment Date | 19 March 2010 |
| Neutral Citation | [2010] CSIH 19 |
| Court | Court of Session |
| Published date | 19 March 2010 |
| Docket Number | XA189/08 |
| Date | 19 March 2010 |
| EXTRA DIVISION, INNER HOUSE, COURT OF SESSION | |
| Lord Reed Lord Bracadale Lord Marnoch | [2010] CSIH 19 XA189/08 OPINION OF THE COURT delivered by LORD REED in the Appeal of THE MARQUESS OF LINLITHGOW AND THE EARL OF HOPETOUN Appellants; against THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS Respondents: under section 222 of the Inheritance Tax Act 1984 _______ |
For the Respondents: Gale QC; Solicitor (Scotland) HM Revenue & Customs
19 March 2010
Introduction
[1] As a result of an amendment made to the Inheritance Tax Act 1984 by the Finance Act 2006, a transfer of value made by an individual which constitutes a gift into an accumulation and maintenance trust is a potentially exempt transfer (and therefore exempt from tax if the transferor survives for the next seven years) only if it was made before 22 March 2006.
[2] On 15 March 2006 the first appellant executed two gratuitous dispositions of land in favour of himself and the second appellant as the trustees of an accumulation and maintenance trust. The dispositions were delivered to the trustees on the same date, which was also the date of entry. One of the dispositions was recorded in the Register of Sasines on 10 October 2006 and the other on 16 November 2006. On 4 September 2008 the respondents issued notices to the appellants informing them of their determination that the first appellant had made a transfer of value of the land in question on the date when each disposition was recorded and that, since the transfers were accordingly not potentially exempt, the first appellant was liable for the inheritance tax due in respect of those transfers. The appellants appealed against those determinations on the ground that the transfers of value had been effected by the delivery of the dispositions and were potentially exempt, having occurred before 22 March 2006.
[3] The issue between the parties, put shortly, is whether a transfer of value occurs for inheritance tax purposes when a gratuitous disposition of heritable subjects in Scotland is delivered to the transferee or when it is recorded.
The relevant provisions
[4] Section 1 of the 1984 Act, as amended, provides that inheritance tax shall be charged on the value transferred by a chargeable transfer. The expression "chargeable transfer" is defined by section 2(1) as meaning a transfer of value which is made by an individual but is not an exempt transfer. The expression "transfer of value" is defined by section 3(1):
"3.-(1) Subject to the following provisions of this Part of this Act, a transfer of value is a disposition made by a person (the transferor) as a result of which the value of his estate immediately after the disposition is less than it would be but for the disposition; and the amount by which it is less is the value transferred by the transfer."
In that provision, the term "disposition" does not have a technical meaning. The term "estate" is defined by section 5(1):
"5.-(1) For the purposes of this Act a person's estate is the aggregate of all the property to which he is beneficially entitled...."
The term "property" is in turn defined by section 272:
"272. In this Act, except where the context otherwise requires,-
....
"property" includes rights and interests of any description".
In relation to the words "beneficially entitled", it is relevant to note the terms of section 5(2):
" (2) A person who has a general power which enables him, or would if he were sui juris enable him, to dispose of any property other than settled property, or to charge money on any property other than settled property, shall be treated as beneficially entitled to the property or money; and for this purpose "general power" means a power or authority enabling the person by whom it is exercisable to appoint or dispose of property as he thinks fit."
In determining the value of a person's estate in accordance with section 3(1), it is also necessary to apply section 5(3) and (5):
" (3) In determining the value of a person's estate at any time his liabilities at that time shall be taken into account, except as otherwise provided by this Act.
.......
(5) Except in the case of a liability imposed by law, a liability incurred by a transferor shall be taken into account only to the extent that it was incurred for a consideration in money or money's worth."
[5] Provision is made by section 3A in relation to potentially exempt transfers. The effect of such a transfer is set out in subsections (4) and (5):
" (4) A potentially exempt transfer which is made seven years or more before the death of the transferor is an exempt transfer and any other potentially exempt transfer is a chargeable transfer.
(5) During the period beginning on the date of a potentially exempt transfer and ending immediately before-
(a) the seventh anniversary of that date, or
(b) if it is earlier, the death of the transferor,
it shall be assumed for the purposes of this Act that the transfer will prove to be an exempt transfer."
The expression "potentially exempt transfer" is defined by subsection (1):
"3A.-(1) Any reference in this Act to a potentially exempt transfer is a reference to a transfer of value-
(a) which is made by an individual on or after 18th March 1986 but before 22nd March 2006; and
(b) which, apart from this section, would be a chargeable transfer (or to the extent to which, apart from this section, it would be such a transfer); and
(c) to the extent that it constitutes either a gift to another individual or a gift into an accumulation and maintenance trust or a disabled trust".
In order for there to be a potentially exempt transfer, there must therefore in the first place be a "transfer of value", within the meaning of section 3(1), which is made before 22 March 2006: that follows from section 3A(1)(a). If there is such a transfer, and it would otherwise be chargeable, it is potentially exempt to the extent that it constitutes a gift into an accumulation and maintenance trust: that follows from section 3A (1)(b) and (c). In relation to subsection (1)(c), further provision is made by subsections (2) and (3). Subsection (2) is concerned with gifts to individuals. Subsection (3) is concerned with gifts into trusts, and provides:
"(3) Subject to subsection (6) below, a transfer of value falls within subsection (1)(c) above, as a gift into an accumulation and maintenance trust or a disabled trust, to the extent that the value transferred is attributable to property which, by virtue of the transfer, becomes settled property to which section 71 or 89 of this Act applies."
Subsection (6) is of no materiality to the present case and can be disregarded. As already mentioned, the term "property" is defined by section 272 as including "rights and interests of any description". The term "settled property" is also defined by section 272:
" 'settlement' and 'settled property' shall be construed in accordance with section 43 above".
Section 43, so far as relevant, provides:
"43.-(1) The following provisions of this section apply for determining what is to be taken for the purposes of this Act to be a settlement, and what property is, accordingly, referred to as property comprised in a settlement or as settled property.
(2) "Settlement" means any disposition or dispositions of property, whether effected by instrument, by parol or by operation of law, or partly in one way and partly in another, whereby the property is for the time being-
(a) held in trust for persons in succession or for any person subject to a contingency, or
(b) held by trustees on trust to accumulate the whole or part of any income of the property or with power to make payments out of that income at the discretion of the trustees or some other person, with or without power to accumulate surplus income."
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