Mrs Sally Ann Burns Mrs Lisa Neil v Her Majesty's Revenue & Customs, SPC 00728

Spc00728

Income Tax - Sections 739 and 741 Taxes Act 1988 - Transfers of UK properties to two Jersey companies - Whether effected without the purpose of avoiding UK taxation - Whether either of the “non tax avoidance” protections of section 741 was available to preclude liability under section 739 - Appeal dismissed

MRS SALLY ANN BURNS

MRS LISA NEIL Appellants

• and –

Special Commissioner: HOWARD M NOWLAN

Sitting in public in London on 3 and 4 December 2008

James Kessler, QC and Amanda Hardy, counsel, for the Appellants

Akash Nawbatt, counsel, for the Respondents

© CROWN COPYRIGHT 2009

1. This was a relatively simple case, revolving almost entirely around a factual dispute as to whether the Appellants could demonstrate that when each of them became 18, and thereupon became absolutely entitled to an interest in significant income-producing real properties in the UK, their immediate transfer of their interests to Jersey companies were made without UK tax avoidance being one of their purposes.

2. Whilst at the time of the transfers, respectively in 1980 and 1982, the two Appellants were resident with their parents in Jersey, they are both currently resident and ordinarily resident in the UK, and were also resident in the two tax years, 1999/2000 and 2000/2001, for which assessments have been made on them under the provision of section 739 Taxes Act 1988. The income of each of the two companies in those two years for which assessments have to date been made was in the region of £160,000 in each year. It was conceded on behalf of the Appellants that all the pre-conditions to liability under section 739 were satisfied (thus potentially rendering the Appellants taxable on the income of the Jersey companies), save for the question of whether their respective transfers were protected by the bona fide defences provided for by section 741.

3. There are two bona fide defences available under section 741. One requires each Appellant to demonstrate, as regards the transfer made by her, that “the purpose of avoiding liability to taxation was not the purpose or one of the purposes for which the transfer …[was] effected”. The other applies in relation to “bona fide commercial transactions” and applies if the Appellants demonstrate that the transfer … [was] not designed for the purpose of avoiding liability to taxation”. Either one is sufficient to eliminate liability to tax under section 739. Where transfers were connected with other “associated operations”, it is necessary also to demonstrate that those associated operations were effected without having as one of their purposes the relevant UK tax avoidance purposes. Whilst the Respondents reserved the right to raise further arguments in due course in relation to alleged “associated operations”, I was asked to ignore “associated operations” in this hearing, and to address the simple question of whether the transfers in isolation were effected for either of the relevant purposes to preclude reliance on section 741.

4. It was initially contended that the Appellants could satisfy both of the section 741 defences, it being suggested that the main purpose of the transfers of the properties to companies was to divorce ownership from management, and put the management responsibility in relation to the properties into the hands of the Appellants’ parents, who were the directors of both companies. It was contended that that was a commercial purpose that enabled the Appellants to claim the benefit of the second defence in addition to their reliance on the first test. In cross-examination that alleged purpose was severely undermined, and I concluded that it was not established that the transfers were commercial transactions. I also concluded that the Appellants had not established that UK tax avoidance was absent from the purposes for which the transfers were made. Indeed, whilst the following remark is not required to support the decision, I was inclined to think that the ostensible purposes of the transfers were very dubious and not proven, and that on the balance of probabilities the transfers were made largely for purposes connected with the avoidance of UK tax. These appeals are accordingly dismissed.

5. The Appellants’ grandfather, Mr. Sydney Sheldon, who died in 1990, had been a successful builder, and director of building companies. His main operations had been in and around Birmingham. It very much appeared that it was through the efforts of Mr. Sheldon that the family in general had built up a very considerable investment in farms and other real property to the west of Birmingham. Most of these properties are largely irrelevant to this appeal, but it is worth mentioning that in addition to the seemingly fairly modest house in Dudley in which Mr. Sheldon had lived, and in which his widow continued to live, the family also owned directly or indirectly three farms (a fourth was purchased in 2004), wasteland in Oldbury, two other properties in Oldbury, and an industrial estate called the Roway Industrial Estate.

6. Mr. and Mrs. Sheldon had a daughter, Freda, who married a Mr. Evans. Mr. and Mrs. Evans themselves had two daughters, the Appellants in these appeals, namely Sally Ann and Lisa, who were born in 1962 and 1964 respectively.

7. In the early 1970’s Mrs. Evans was considering the sale of land that she owned in Halesowen. One of her father’s friends had moved to Jersey, and it seems that Mr. Sheldon thus suggested that Mr. Evans and Mrs. Evans and their two children should move to Jersey. They were told that they would not have to pay capital gains tax on the sale of the property if they moved abroad. Thus, “on my father’s advice”, according to the text of Mrs. Evans’ witness statement, “we went to look at Jersey and decided that it was a place where we would like to settle”. In 1974 the Evans family thus emigrated to Jersey. For some reason that is not presently material, the subsequent sale of the Halesowen property did attract capital gains tax, which was paid. Mr. Evans was resident and domiciled in Jersey until his death in December 1998, and Mrs. Evans is still resident in Jersey and intends to remain there.

8. Two of the UK properties amongst those referred to in paragraph 5 above are relevant to this appeal. By far the most significant is the Roway Industrial Estate. This had been purchased, apparently in equal shares, by Mr. Sheldon, Mrs. Sheldon and Mrs. Evans in 1966. I was not told how the building works were financed by the two owners aside from Mr. Sheldon, but it was clear that Mr. Sheldon was steadily building industrial units on the land. In 1971 the three then owners created between them, very much on the instigation of Mr. Sheldon, six settlements under which each of them transferred half their interest in the relevant land to a UK settlement, one for each of Mrs. Evans’ daughters, Sally Ann and Lisa. The result of this was that the six settlements owned the entirety of the industrial estate. Under the terms of the settlements, the land was to vest absolutely in the ownership of the two girls when each became 18.

9. The other property to mention is one...