Peter Routier and Another v The Commissioners for HM Revenue & Customs
| Jurisdiction | England & Wales |
| Judge | Lord Justice Kitchin,Lord Justice Tomlinson,Lord Justice Moore-Bick |
| Judgment Date | 16 September 2016 |
| Neutral Citation | [2016] EWCA Civ 938 |
| Court | Court of Appeal (Civil Division) |
| Date | 16 September 2016 |
| Docket Number | Case No: A3/2014/3253 |
[2016] EWCA Civ 938
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Hon Mrs Justice Rose
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Moore-Bick
(VICE PRESIDENT OF THE COURT OF APPEAL, CIVIL DIVISION
Lord Justice Tomlinson
and
Lord Justice Kitchin
Case No: A3/2014/3253
Richard Vallat (instructed by Irwin Mitchell LLP) for the Appellants
David Yates (instructed by General Counsel and Solicitor for HM Revenue & Customs) for the Respondents
Hearing date: 14 June 2016
Approved Judgment
This is an appeal against the order of Mrs Justice Rose made on 18 September 2014 dismissing the appeal of the appellants, the executors of the late Beryl Coulter, against a determination by the respondents, HMRC, that the appellants, as executors, are liable for inheritance tax of about £600,000.
The appeal raises two issues. The first is whether the residuary estate of Beryl Coulter was "given to charities" for the purposes of s.23 of the Inheritance Tax Act 1984 ("the IHTA 1984") and is therefore exempt from inheritance tax.
The second is raised by amendment to the grounds of appeal for which we gave permission at the hearing of the appeal on 14 June 2016. The appellants assert that s.23, if construed in the manner for which HMRC contend and Rose J accepted, would constitute an unlawful restriction on the free movement of capital between Member States and third countries within the meaning of Article 63 of the Treaty on the Functioning of the European Union ("the TFEU").
The background
Mrs Coulter was domiciled in Jersey and died there on 9 October 2007. At the date of her death, her estate included assets in the United Kingdom with a probate value of a little in excess of £1,818,000.
By her will ("the Will"), Mrs Coulter left her residuary estate, including the United Kingdom assets, on trust ("the Coulter Trust") for the purpose of constructing homes for elderly residents of the parish of St Ouen in Jersey or, in default, to assist with the capital expenditure required by an organisation called Jersey Hospice Care. Clause 2 of the Will reads, so far as relevant:
"2. To accumulate the income of the Coulter Trust and to distribute the Coulter Trust together with any accumulated income therefrom UNTO such incorporated body as may be set up by the Parish of St Ouen for the purpose of the provision of homes for the elderly of the Parish …"
Clause 2 then specifies various conditions to which it is subject.
Clause 3 of the Will contains the gift in default and reads, so far as relevant:
"3. In the event that the Parish of St Ouen fails neglects or refuses to set up an incorporated body as set out above within three years of my decease, or fails or refuses to accept any of the conditions of my gift as set out above then in either of these events I DIRECT that my Trustees shall in place of the Incorporated Body, hold the Coulter Trust and distribute the same both as to income as capital UNTO JERSEY HOSPICE CARE to assist with capital expenditure required by Jersey Hospice Care as in their discretion may deem fit, and in the event that the capital expenditure is required for the construction of buildings for Jersey Hospice Care then this upon [certain conditions to which clause 2 is also subject]."
The Coulter Trust is established under and subject to Jersey law and at all material times the trustees were Jersey trustees.
The statutory framework
Under the IHTA 1984, inheritance tax is charged at death on the United Kingdom estate of a person domiciled outside the United Kingdom, subject to various reliefs and exemptions. The tax is charged as if, immediately before death, that person had made a transfer of value and the value of that transfer had been equal to the value of the estate immediately before death. For those persons domiciled outside the United Kingdom, the value of property situated outside the United Kingdom is excluded.
Part II of the IHTA 1984 sets out which transfers are exempt. At the relevant time s.23 provided:
" 23 Gifts to charities
(1) Transfers of value are exempt to the extent that the values transferred by them are attributable to property which is given to charities.
…
(6) For the purposes of this section property is given to charities if it becomes the property of charities or is held on trust for charitable purposes only, and "donor" shall be construed accordingly."
Accordingly, transfers of value are exempt to the extent that the values transferred by them are attributable to property given to charities, and property is given to charities if either the property becomes the property of charities (the first limb) or the property is held on trust for charitable purposes only (the second limb).
Section 272 of the IHTA 1984 (as it stood at the relevant time) provided that:
"Charity" and "charitable" have the same meanings as in the Income Tax Acts."
Section 989 of the Income Tax Act 2007 ("the ITA 2007") defined "charity" (but not "charitable purposes") for the purposes of the Income Tax Acts in these terms:
""charity" means a body of persons or trust established for charitable purposes only,"
It follows that the two limbs of s.23 can be elaborated in this way:
i) the first limb exempts a transfer if the property becomes the property of any body of persons or trust established for charitable purposes only; and
ii) the second limb exempts the transfer if the property is held on trust for charitable purposes only.
The first issue
There is a considerable amount of common ground. The facts are agreed; it is agreed that the Coulter Trust has only charitable purposes as a matter of English law; and it is agreed that it matters not that those purposes are to be carried out outside the United Kingdom.
The appellants also accept that the Coulter Trust is not a "trust established for charitable purposes only" within the meaning of s.989 of the ITA 2007 or the first limb of s.23 of the IHTA 1984. As I shall explain, the reason this is accepted is that the phrase "trust established for charitable purposes only" in the context of s.37 of the Income Tax Act of 1918 ("the ITA 1918") was held by the House of Lords in Camille and Henry Dreyfus Foundation Inc v IRC [1956] AC 39 (affirming the decision of the Court of Appeal [1954] 1 Ch 672) to contain an implicit limitation such that it only includes trusts which are governed by the law of some part of the United Kingdom and are subject to the jurisdiction of the courts of the United Kingdom. As I have said, the Coulter Trust is established under and is governed by the law of Jersey. Accordingly, it is not a "charity" within the meaning of s.989 of the ITA 2007. It also follows that the Will did not effect a transfer to "a trust established for charitable purposes only" within the meaning of the first limb of s.23 of the IHTA 1984.
The question raised by the first issue on this appeal is whether the phrase "held on trust for charitable purposes only" in the second limb of s.23 is subject to the same implicit limitation, that is to say that the trust must be governed by the law of the United Kingdom and subject to the jurisdiction of the United Kingdom courts. HMRC contended and Rose J accepted that it is. The appellants submit that the judge fell into error in so doing.
Consideration of this question must begin with the Dreyfus case. This concerned a claim by the Camille and Henry Dreyfus Foundation Inc ("the foundation"), a body constituted under the laws of the State of New York, to an exemption from income tax in respect of its receipt of royalties from an English company. It was accepted that tax was payable on these sums unless relief was obtainable under s.37(1)(b) of the ITA 1918. This provided that an exemption should be granted from tax under the relevant schedules in force in respect of certain payments:
"… forming part of the income of any body of persons or trust established for charitable purposes only or which, according to the rules or regulations established by Act of Parliament, charter, decree, deed of trust, or will, are applicable to charitable purposes only, and so far as the same are applied to charitable purposes only;"
It was conceded by the foundation that the phrase "for charitable purposes" meant purposes which were charitable under the law of the United Kingdom but it maintained that its activities, having regard to the terms of its certificate of incorporation, met this requirement. The finding of the Special Commissioners on this point was favourable to the foundation, and this finding was upheld by the Court of Appeal and not disturbed by the House of Lords. However, the Special Commissioners also decided that, in order to obtain the privilege of exemption under s.37(1)(b) of the ITA 1918, the body of persons claiming the privilege must be one established under and in accordance with the laws of the United Kingdom. The foundation, being a foreign corporation and not subject to the jurisdiction, was debarred from claiming the benefit of the exemption. Upon this issue the Court of Appeal again agreed with the Special Commissioners. Each member of the Court of Appeal gave a full judgment.
Sir Raymond Evershed MR considered that the answer to the problem depended upon the true interpretation, according to ordinary principles, of the whole phrase, including the essential...
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Routier and Another v The Commissioners for HM Revenue and Customs
...charity under the law of England and Wales. 6 The executors appealed to the High Court (Rose J [2014] EWHC 3010 Ch) and this Court ( [2016] EWCA Civ 938 Moore-Bick VP, Tomlinson and Kitchin LJJ). Both courts upheld HMRC's determination. The essential reasoning of this Court was that IHTA,......
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Routier and Another v Revenue and Customs Commissioners
...must be governed by the law of some part of the United Kingdom and be subject to the jurisdiction of the courts of the United Kingdom: [2016] EWCA Civ 938; [2017] PTSR 73; [2016] STC 2218. In so holding, the court upheld the decision of Rose J: [2014] EWHC 3010 (Ch); [2015] STC 40 It i......