Marshall (Inspector of Taxes) v Kerr
| Jurisdiction | UK Non-devolved |
| Judge | Lord Mackay of Clashfern L.C.,Lord Templeman,Lord Goff of Chieveley,Lord Lowry,Lord Browne-Wilkinson |
| Judgment Date | 30 June 1994 |
| Judgment citation (vLex) | [1994] UKHL J0630-1 |
| Date | 30 June 1994 |
| Court | House of Lords |
[1994] UKHL J0630-1
Lord Chancellor
Lord Templeman
Lord Goff of Chieveley
Lord Lowry
Lord Browne-Wilkinson
House of Lords
I had written a speech of my own before I had the advantage of reading in draft the speeches of your Lordships. I find myself readily in agreement with my noble and learned friend Lord Browne-Wilkinson's approach to this case save in respect of one aspect.
All the assets which passed to Regent as Trustees of Mrs. Kerr's settlement are for capital gains tax purposes to be treated as if they were acquired by Regent at the date or dates at which they were acquired by the personal representative. For assets owned by the deceased at the date of his death, this date is the date of his death; and for assets subsequently acquired by the personal representatives in the course of administration, the date on which they were so acquired. In respect of all these assets, therefore, for the purposes of capital gains tax computations, my noble and learned friend and I appear to be agreed that the period of administration is to be disregarded. I have found it very difficult to accept that in respect of these assets the capital gains tax legislation allows an opportunity for Mrs. Kerr to assign her right in an estate under administration which is the foundation of my noble and learned friend's view. However, I have concluded that this may be stretching the assumptions of section 24 further than Parliament intended.
Out of respect for the argument for the respondent I content myself with saying that but for the fact that I have had the help of my noble and learned friend Lord Browne-Wilkinson's opinion I should have been persuaded by the respondent's argument.
My Lords,
In this appeal the respondent taxpayer contends that for the purpose of capital gains tax a settlement in fact made on 31 January 1978 by a beneficiary under a will was either made by the testator who died on 27 February 1977 or was not made by anybody. The Revenue contend that Parliament neither intended nor achieved any such result.
Part III of the Finance Act 1965 charges capital gains tax on a taxpayer who is resident or ordinarily resident in the United Kingdom. A capital gain is the difference between the cost to the taxpayer of an asset and the price obtainable by the taxpayer on disposal of the asset. Section 24 of the Act of 1965 provides for the incidence of capital gains tax consequent on a death.
In the present case, the testator, Mr. Brooks, made his last will dated 27 February 1974 and died domiciled resident and ordinarily resident in Jersey outside the United Kingdom. His will was proved in Jersey on 30 March 1977 by his executor Regent Trust Co. Ltd. ("Regent") a company which was then and remained at all material times resident in Jersey. In the events which happened, the testator's daughter, Mrs. Kerr, became entitled under the will of the testator to one half of his residuary personal estate absolutely.
Section 24( 1) and (7) of the Finance Act 1965 amended down to 1977 provided as follows:
"(1) For the purposes of this Part of this Act, the assets of which a deceased person was competent to dispose-
( a) shall be deemed to be acquired on his death by the personal representatives or other person on whom they devolve for a consideration equal to their market value at the date of the death; but
( b) shall not be deemed to be disposed of by him on his death (whether or not they were the subject of a testamentary disposition).
(7) On a person acquiring any asset as legatee-
( a) no chargeable gain shall accrue to the personal representatives, and
( b) the legatee shall be treated as if the personal representatives' acquisition of the asset had been his acquisition of it."
Under section 45 of the Act of 1965. "legatee" includes "any person taking under a testamentary disposition … whether he takes beneficially or as trustee".
Section 24(1) ensures that no capital gains tax is payable in respect of an increase in value of an asset between the date of acquisition by a testator and his death. Section 24(7) applies when a personal representative assents to the vesting in a legatee of an asset comprised in the estate at the date of death. The assent does not constitute a disposal for the purposes of the tax. The legatee is treated as if he had acquired the asset on the death of the testator at market value. When the legatee disposes of the asset his chargeable gain will be measured by the difference between the market value of the asset at the death of the testator and the price or value of the asset when the legatee disposes of the asset.
By section 24(11):
"(11) If not more than two years after a death any of the dispositions of the property of which the deceased was competent to dispose … are varied by a deed of family arrangement or similar instrument, this section shall apply as if the variations made by the deed … were effected by the deceased, and no disposition made by the deed … shall constitute a disposal for the purposes of this Part of this Act."
As a result of section 24(11) an arrangement is not treated as a disposal for the purposes of the tax. When, following an arrangement, personal representatives assent to an asset vesting in the substitute legatee created by the arrangement, he is to be treated as if he acquired the asset on the death of the testator at market value. In the result when the substituted legatee disposes of the asset his capital gain will be measured by the difference between the market value of the asset at the death of the testator and the price or value of the asset at the date of disposal. There are no other effects of section 24.
An instrument of family arrangement dated 31 January 1978 ("the arrangement") made between Mrs. Kerr and Regent cited the will, death and probate of the will of the testator and directed that "the one half share in the testators said residuary personal estate to which Mrs. Kerr is entitled" be held by Regent upon the trusts and with and subject to the powers and provisions set forth in the arrangement. Under the arrangement Regent as trustee had power to appoint capital to Mrs. Kerr. The arrangement complied with the provisions of section 24(11) of the Act of 1965 and, pursuant to sections 24( 7) and 24(11) did not constitute a disposal of any assets. When, following the arrangement, Regent as personal representative assented to the vesting in Regent of any asset to be held upon the trusts of the arrangement, the provisions of section 24( 7) and 24(11) ensured that there was no disposal of that asset. Thenceforth Regent, the substitute legatee, was treated under section 24(7) and section 24(11) as having acquired that asset for a consideration equal to the market value of the asset at the date of the death of the testator. In the result when Regent disposed of that asset its capital gain fell to be measured by the difference between the market value of the asset at the death of the testator and the price or value of the asset at the date of disposal. In my opinion section 24 deals with the consequences of death and nothing else.
Section 42 of the Act of 1965 as amended and replaced by section 80 of the Finance Act 1981 imposes capital gains tax on beneficiaries who receive capital payments under a non resident settlement which has made capital gains. By section 80 of the Act of 1981, so far as material:
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"(1) This section applies to a settlement for any year of assessment (beginning on or after 6 April 1981) during which the trustees are at no time resident or ordinarily resident in the United Kingdom if the settlor or one of the settlors is at any time during that year, or was when he made this settlement, domiciled and either resident or ordinarily resident in the United Kingdom.
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(2) There shall be computed in respect of every year of assessment for which this section applies the amount on which the trustees would have been chargeable to tax … if they had been resident or ordinarily resident in the United Kingdom in the year; and that amount, together with the corresponding amount in respect of any earlier year … is in this section … referred to as the trust gains for the year.
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(3) … The trust gains for a year of assessment shall be treated as chargeable gains accruing in that year to beneficiaries of the settlement who receive capital payments from the trustees in that year or have received such payments in any earlier year.
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(4) The attribution of chargeable gains to beneficiaries under subsection (3) above shall be made in proportion to, but shall not exceed, the amounts of the capital payments received by them."
After 6 April 1981 Regent as trustee of the settlement constituted by the arrangement made capital gains but did not pay capital gains tax because Regent was not resident nor ordinarily resident in the United Kingdom. Regent as trustee made capital payments to Mrs. Kerr who was at all material times domiciled and resident in the United Kingdom. Mrs. Kerr having created the settlement was, in my opinion, to the extent of the capital she received from Regent, liable under section 80 of the Act of 1981 to tax in respect of the capital gains made by Regent. Mrs. Kerr was the settlor of the settlement constituted by the arrangement because Mrs. Kerr and only Mrs. Kerr possessed the power to create the trust powers and provisions contained in the arrangement with regard to assets which became vested in Regent as trustee of the arrangement.
The tax payer's principal argument was that section 24(11) requires the court to assume that the provisions of the arrangement dated 31 January 1978 had been contained in the will of the testator who died on 27 February 1977. But section 24(11) only...
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