Minden Trust (Cayman) Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 17 April 1984 |
| Date | 17 April 1984 |
| Court | Chancery Division |
Chancery Division.
Mr. D. Rattee Q.C. and Mr. C. McCall (instructed by Currey & Co.) for the trustees.
Mr. J. Knox Q.C. and Mr. M. Hart (instructed by the Solicitor of Inland Revenue) for the Revenue.
Before: Warner J.
Capital transfer tax - Capital distribution - Beneficiary domiciled and ordinarily resident outside UK - Creation of interest in possession in exempt government securities - Property previously comprised in settlement with beneficiaries domiciled and ordinarily resident in UK - Whether securities excluded property - Whether two settlements to be treated as one - Finance Act 1975 schedule 5 subsec-or-para 1 schedule 5 subsec-or-para 6 schedule 5 subsec-or-para 11 schedule 5 subsec-or-para 11Finance Act 1975, Sch. 5. para. 1, 6(2), 11(1), (11); Finance Act 1975 schedule 7 subsec-or-para 3Sch. 7, para. 3(2).
This was an appeal by trustees direct to the High Court underFinance Act 1975 schedule 4para. 7(3) of Sch. 4 to the Finance Act 1975, against determinations by the Inland Revenue Commissioners that capital transfer tax became payable on 8 March 1978 when a beneficiary, Lady Iveagh, acquired an interest in possession in a holding of £1,164,959.93 of Treasury 101/2% stock 1978.
On 30 March 1961 a UK resident made a settlement for the benefit of all children and remoter issue of her father, their spouses and former spouses. The class of beneficiaries included some persons who were domiciled and ordinarily resident in the UK, and some, including Lady Iveagh, who were not. On 10 February 1978 a second settlement was made for beneficiaries not resident in the UK, including Lady Iveagh. No distribution was made from the 1961 settlement but by a resolution made on 7 March 1978 the trustees of that settlement transferred1/7 of its assets, including Treasury 101/2% stock, to the 1978 settlement. On 8 March 1978 the trustees of the 1978 settlement made an appointment which had the effect of accelerating the vesting in possession of Lady Iveagh's life interest at a time when no interest in possession subsisted.
It was common ground between the parties that by Finance Act 1975 schedule 5para. 6(2) of Sch. 5 to the 1975 Act a capital distribution was prima facie to be treated as having been made and tax was chargeable. On that basis the Revenue had served notices of determination of the tax payable.
The trustees appealed, contending that the property appointed, being a holding of "exempt" government securities, was excluded property withinFinance Act 1975 schedule 7para. 3 of Sch. 7 to the 1975 Act (set out below). It followed that by virtue of Finance Act 1975 schedule 5para. 11(11) of Sch. 5 to that Act, the securities were not settled property in respect of which a capital distribution gave rise to a CTT charge.
The question of whether the requirements of Finance Act 1975 schedule 7 subsec-or-para 3Sch. 7, para. 3 were satisfied depended upon what meaning was attributed to the words "the settled property" in that paragraph.
The trustees contended first that it was not necessary to look beyondFinance Act 1975para. 3(2) for the meaning. The words connoted the securities themselves, being the property currently comprised in the fund. Alternatively, if the definitions inFinance Act 1975 schedule 5para. 1 of Sch. 5 were applied, the expression could only refer to property affected by both the 1961 settlement and the resolution of 7 March 1978. The Revenue argued that the expression referred to all the property comprised in the 1961 settlement. Since some of the beneficiaries under that settlement were domiciled and ordinarily resident in the UK, the securities appointed to Lady Iveagh were not excluded property within Finance Act 1975 schedule 7 subsec-or-para 3Sch. 7, para. 3.
Held, allowing the trustees' appeal:
1. Finance Act 1975Para. 3(2) could not be treated alone. It had to be interpreted in the light of other provisions in the Act, in particular Finance Act 1975 schedule 5Sch. 5.
2. The phrase "the settled property" in Finance Act 1975para. 3(2) applied only to the property affected by both the 1961 settlement and the resolution of 7 March 1978. The property comprised in those two relevant dispositions did not include all the property settled in the 1961 settlement. There were two dispositions, only one of which constituted the settlement of other property by the settlor. It could not therefore be said that all the property settled by her was comprised in the same settlement at the time of the appointment. Accordingly, the property appointed was excluded property for capital transfer tax purposes.
Note: Finance Act 1975 schedule 7 subsec-or-para 3 schedule 7 subsec-or-para 3Finance Act 1975, Sch. 7, para. 3(1) and (2)read as follows:
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(2) Where securities have been issued by the Treasury subject to a condition authorised by Finance Act 1931 section 22section 22 of the Finance (No. 2) Act 1931 (or section 47section 47 of the Finance (No. 2) Act 1915) for exemption from taxation so long as the securities are in the beneficial ownership of persons neither domiciled nor ordinarily resident in the United Kingdom the securities are excluded property-
(a) if they are not settled property and are in the beneficial ownership of such a person; or
(b) if they are settled property and such a person is entitled to a qualifying interest in possession in them.
(3) If the securities are settled property and no qualifying interest in possession subsists in them the condition of Finance Act 1975 section ubsub-paragraph (1)(b) above shall be treated as satisfied if it is shown that all known persons for whose benefit the settled property or income from it has been or might be applied or who are or might become beneficially entitled to an interest in possession in it are persons neither domiciled nor ordinarily resident in the United Kingdom.
For events after 19 April 1978, see Finance Act 1975 schedule 7 subsec-or-para 3Finance Act 1975, Sch. 7, para. 3(2A), inserted by Finance Act 1978, Finance Act 1978 section 72sec. 72.
By an originating summons dated 8 December 1983 the taxpayers appealed to the High Court against a determination by the Commissioners of Inland Revenue for:
1. An Order that the Notices of Determination dated 4 November 1983 issued by the Revenue and containing a determination that capital transfer tax was chargeable in the sum of £657,040.40 on a capital distribution treated as made by virtue of an Appointment made on 8 March 1978 by the trustees and supplemental to the Settlement dated 10 February 1978, should be quashed.
2. A declaration that no tax was chargeable in respect of the capital distribution so treated as made on the footing that after taking into account all liabilities attaching thereto the property comprised in such Appointment was wholly represented by securities of the nature specified in Finance Act 1975 schedule 7para. 3 of Sch. 7 to theFinance Act 1975 such as constituted excluded property for the purposes of the Act by virtue of Finance Act 1975para. 3(2) of the Schedule.
Warner J.: By this originating summons the Plaintiffs appeal direct to the High Court under Finance Act 1975 schedule 4 subsec-or-para 7para. 7(3) of Sch. 4 to the Finance Act 1975 against determinations made by the Commissioners of Inland Revenue to the effect that capital transfer tax became payable on 8 March 1978 on a holding of £1,164,959.93 of Treasury 101/2% Stock 1978 in which, on that day, the Rt. Hon. Miranda Daphne Jane, Countess of Iveagh (whom I will call "Lady Iveagh") acquired an interest in possession in circumstances that I will describe. Treasury 101/2% Stock 1978 was issued subject to a condition authorised by Finance Act 1931 section 22sec. 22 of the Finance (No. 2) Act 1931 for exemption from taxation while in the beneficial ownership of persons neither domiciled nor ordinarily resident in the United Kingdom. Lady Iveagh, her husband and her existing issue were at the material time neither domiciled nor ordinarily resident in the UK. They were domiciled and ordinarily resident in Ireland.
The relevant circumstances were these.
On 30 March 1961 Mrs. Veronica Mary Tritton, a United Kingdom resident, made a settlement (which I will call "the 1961 settlement") for the benefit of all the children and remoter issue of her father other than herself, and their respective spouses and former spouses. The class of beneficiaries thus defined included Lady Iveagh, her husband and her issue. It also included persons who were and are domiciled and ordinarily resident in the United Kingdom. On 11 December 1969Stamp J. (as he then was) made an order under the Variation of Trusts Act 1958 approving an arrangement whereby the provisions of the 1961 settlement were varied.
So far as relevant for present purposes the trusts of the 1961 settlement, as so varied, may be summarised as follows. The trustees have power, during a period which has not yet ended, to accumulate income of the trust fund as an accretion to capital. Subject to that power the trustees are required to distribute the income of the trust fund arising in every year among the beneficiaries in such manner and in such shares as the trustees think fit. In fact the trustees have at all times exercised their power of accumulation to the full so that there has been no allocation of income to any beneficiary. The settlement provides for an...
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Minden Trust (Cayman) Ltd v Commissioners of Inland Revenue
...(11); Finance Act 1975 schedule 7 subsec-or-para 3Sch. 7, para. 3(2). This was an appeal by the Crown from a decision of Warner J. ([1984] BTC 8071) in proceedings brought to determine the validity of a claim that settled property which consisted of exempt government securities was excluded......