Michael Warren Ingram and Others (Appellants v The Commissioners of Inland Revenue (Respondents
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NOURSE,Lord Justice EVANS,Lord Justice MILLETT |
| Judgment Date | 28 July 1997 |
| Judgment citation (vLex) | [1997] EWCA Civ J0728-3 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | CHRVF 95/1602/B |
| Date | 28 July 1997 |
[1997] EWCA Civ J0728-3
IN THE SUPREME COURT OF JUDICATURE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE CHANCERY DIVISION
(REVENUE LIST)
(Mr Justice Ferris)
Royal Courts of Justice
Strand
London WC2
Lord Justice Nourse
Lord Justice Evans
and
Lord Justice Millett
CHRVF 95/1602/B
MR E NUGEE QC and MR M FURNESS (instructed by the Solicitor of Inland Revenue, London WC2) appeared on behalf of the Appellant Respondents.
MR R VENABLES QC and MR R GRIERSON (instructed by Messrs Norton Rose, London EC3) appeared on behalf of the Respondent Appellants.
Monday, 28th July 1997
Introduction
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 3rd 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. Mr Justice Ferris 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 Mr Justice Ferris is reported at [1995] 4 All ER 334. 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.
The background
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 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 revenue matters instructed by Mr Macfadyen on her behalf, Lady Ingram decided that she would make a gift of her freehold interest in the property, subject to a leasehold interest for the next 20 years at no rent which she would retain for herself. Acting on her instructions, Mr Macfadyen prepared the necessary documentation.
The transactions
The first step was the execution by Lady Ingram, on 29th March, of a conveyance of the unregistered land and a transfer of the registered land in favour of Mr Macfadyen. Each of those instruments was in form an out and out voluntary disposition of the property comprised therein. However, also on 29th March, Mr Macfadyen executed two deed polls, described as declarations of nomineeship, each of which recited that the property had been conveyed or transferred to him upon trust as thereinafter mentioned. By the operative part of each deed Mr Macfadyen declared that he held the property as nominee for Lady Ingram and agreed that he would transfer it to her at such time and in such manner or otherwise deal with it as she should direct or appoint. In the result Mr Macfadyen held the unencumbered freehold interest in the property in trust for Lady Ingram absolutely. There being for present purposes no material difference between the relationships of trustee and beneficiary on the one hand and nominee and principal on the other, I will adopt the terminology used by the parties and refer to Mr Macfadyen and Lady Ingram as nominee and principal respectively.
On the following day, 30th March, Mr Macfadyen, at Lady Ingram's direction, executed two leases, together comprising the whole of the property, in favour of Lady Ingram as tenant for a term of 20 years from 30th March 1987 free of rent. One of them comprised Hurst Lodge, its surrounding land and some neighbouring cottages and the other a separate piece of agricultural land at Hurst and the agricultural land at Whistley Green. Each of them contained covenants by Lady Ingram in a form appropriate to the property comprised in it which it is not suggested did not impose real obligations on her. Each contained an absolute covenant against assignment, underletting, charging, or parting with or sharing the possession of the occupation of the whole or any part or parts of the property. There were also covenants to permit the landLord to enter to do repairs himself and, in the lease of the agricultural land, to deliver up the property at the end of the term in good and substantial repair and condition. In the lease of Hurst Lodge there was a covenant to deliver up the property in such good and substantial repair and condition as was evidenced by the schedule of condition of the property attached thereto. By neither lease was any greater obligation imposed on Lady Ingram to do repairs herself. The only covenant on the part of the landLord was for quiet enjoyment. There was a proviso for forfeiture for breach of covenant.
On the following day, 31st March, again at Lady Ingram's direction, Mr Macfadyen executed two conveyances and a transfer conveying and transferring the freeholds in the various parts of the property to Michael Warren Ingram, Christopher David Palmer-Tomkinson and David Michael Ingram ("the trustees"). Each of those instruments stated that the property to which it related was conveyed or transferred to the trustees "to hold.. on trusts declared concerning the same". Each of them was expressed to take effect subject to and with the benefit of the relevant lease in favour of Lady Ingram. Also on 31st March the trustees executed two declarations of trust, again expressed to be subject to the relevant lease or leases, under each of which the property was declared to be held on trust for sale and immediate absolute interests in the proceeds of sale were declared in favour of Lady Ingram's three daughters and the trustees of a settlement made on 29th March 1987 for the benefit of the children of her deceased son and known as Robin Ingram's children's 1987 settlement. She herself could not in any circumstances have benefited under or by virtue of the declarations of trust, although in each case the property comprised therein could not be sold during her lifetime without her written consent.
The judge thought that there was an instant of time between the execution of the conveyances and transfer and the execution of the declarations of trust, during which the trustees held the property in trust for Lady Ingram. I do not think that that can be a correct view of the matter. It is true that in his affidavit Mr Macfadyen, having referred first to the execution of the conveyances and transfer on 31st March, then states that on the same day the trustees executed the declarations of trust. That may well indicate that the conveyances and transfer were executed first. However, I think that the correct inference, especially in view of the words in the declarations of trust "on trusts.. declared" (not "on trusts to be declared"), is that the conveyances and transfer and the declarations of trust were all intended to take effect, and did take effect, at one and the same time.
The decision of the judge
The intended fiscal consequences of the transactions, the best result they could achieve as a result of Lady Ingram's death within two years ("consequence (e)"), the nature of the Crown's claim, the route by which it contended that the claim was made good and the issues to which the case gives rise are stated in the judgment of Mr Justice Ferris at [1995] 4 All ER, 338B to 339F, and need not be repeated. In a full and clear judgment the judge decided, first, that the leases in favour of Lady Ingram, having been granted by a nominee to his principal, were a nullity; secondly, that the freehold interests in the property were, after 31st March 1987 and subject to an equitable interest in Lady Ingram equivalent to that which she would have taken had the leases been valid, enjoyed to the entire exclusion of Lady Ingram and of any benefit to her by contract or otherwise. In view of his decision that the...
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