Philip Anton Van Der Merwe v Deborah Lynne Goldman and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Morgan |
| Judgment Date | 11 April 2016 |
| Neutral Citation | [2016] EWHC 790 (Ch) |
| Docket Number | Case No: HC-2015000494 |
| Court | Chancery Division |
| Date | 11 April 2016 |
[2016] EWHC 790 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC4A 1NL
Mr Justice Morgan
Case No: HC-2015000494
Mr Richard Wilson QC (instructed by Berwin Leighton Paisner LLP) for the Claimant
Mr James Weale (instructed by Berwin Leighton Paisner LLP) for the First Defendant
Mr Philip Jones QC (instructed by HMRC Solicitor's Office) for the Second Defendant
Hearing dates: 16 & 17 March 2016
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
The claim in outline
The First Defendant is the wife of the Claimant. Prior to 24 March 2006, the Claimant and the First Defendant were the joint freehold owners of a substantial house in Oxford, where they lived. On Friday 24 March 2006, the Claimant and the First Defendant executed a transfer of the title to the house to the Claimant alone, for no stated consideration. On Monday 27 March 2006, the Claimant executed a deed of settlement whereby he settled the house on the terms of that deed and appointed himself and the First Defendant as trustees of the settlement. Also on 27 March 2006, the Claimant executed a transfer of the title to the house to himself and the First Defendant as the trustees of the settlement.
An unintended consequence of the above steps was that the Claimant became liable to pay a substantial sum of inheritance tax at the rate of 20% of the value of the house on 27 March 2006, pursuant to sections 1, 2 and 3 of the Inheritance Tax Act 1984 (" IHTA"), and became liable to pay a further charge on every 10 th anniversary of 27 March 2006, at the rate of 6% of the value of the house at that anniversary, pursuant to section 64 of IHTA. These provisions applied by reason of a change in the law effected by the Finance Act 2006. The relevant provisions of the Finance Act 2006 were enacted after March 2006 but gave effect to a budget announcement which was made on 22 March 2006 and the relevant amendments had retrospective effect from 22 March 2006.
The Claimant and the First Defendant were not aware of the budget announcement of 22 March 2006 when they executed the various documents on 24 and 27 March 2006. When they executed these documents, they believed that the steps taken would not result in an immediate charge to tax nor a 10-year anniversary charge.
In these proceedings, the Claimant alone seeks an order setting aside the settlement and the transfer of 27 March 2006, on the basis that he was mistaken as to the tax consequences of creating that settlement. The First Defendant does not oppose the relief sought by the Claimant. If that relief were granted then the effect of the court's order would be that the position would be restored to the position immediately after the transfer of 24 March 2006 by the Claimant and the First Defendant to the Claimant alone. There is no pleaded claim by the Claimant and the First Defendant, acting together, to set aside the transfer of 24 March 2006.
The Commissioners for Her Majesty's Revenue and Customs ("HMRC") have been joined as Second Defendants in these proceedings. HMRC contend that, on a proper analysis of the relevant transactions, the settlement and the transfer of 27 March 2006 were not transactions in favour of a volunteer so that the court could not set aside the settlement and the transfer of 27 March 2006 unless they could be held to be void for mistake at common law, which was not suggested by the Claimant. This gave rise to a question as to whether the position would be different if the application before the court had been an application by the Claimant and the First Defendant, acting together, to set aside the transfer of 24 March 2006 and the settlement and transfer of 27 March 2006. In turn, counsel for the Claimant and counsel for the First Defendant indicated that they would wish the court to consider the claim as involving a claim by the Claimant to set aside the settlement and the transfer of 27 March 2006, alternatively, a claim by the Claimant and the First Defendant, acting together, to set aside the transfer of 24 March 2006 and the settlement and the transfer of 27 March 2006. HMRC did not oppose the request from the Claimant and the First Defendant that the case be considered in that way and, accordingly, I will consider these alternative claims.
The procedural history
In August 2012, the Claimant became aware of the tax consequences of the transactions of March 2006. On 9 February 2015, he brought the present proceedings by a Part 8 Claim Form, supported by his witness statement dated 14 January 2015. Initially, the sole Defendant was his wife who filed an acknowledgment of service stating that she did not intend to contest the claim. On 27 August 2015, Master Bowles ordered that HMRC be added as Defendants. The claim was due to be tried on 8 and 9 October 2015. On 6 October 2015, on the application of HMRC, the court adjourned the trial and gave directions. In accordance with those directions, HMRC served Points of Dispute in relation to the claim and the Claimant served Points of Reply. The claim was then listed for trial with a listing category of A. I assume that the choice of listing category was influenced by the fact that HMRC had pleaded that it would contend that, as a matter of public policy, the settlement ought not to be set aside. HMRC plainly wished to rely upon the dicta of Lord Walker in Pitt v Holt [2013] 2 AC 108 at [135] which have given rise to considerable debate and some uncertainty. It may be that HMRC wished to use the present claim to lead to a clarification of the law in this respect. In the event, as will be seen, considerations of public policy rather fell away in the course of the argument and the case involved more of an examination of the correct legal analysis of the specific transactions which occurred on 24 and 27 March 2006.
At the trial, the Claimant gave evidence and was cross-examined by counsel for HMRC. I was provided with a witness statement of the First Defendant. Counsel for HMRC indicated that he would wish to cross-examine the First Defendant but that he would not need to do so if certain passages in her witness statement (dealing with the prejudice to herself and her family if the settlement were not set aside) were not relied upon. In the event, those passages did not need to be relied upon by the Claimant and the First Defendant and she did not attend for cross-examination. The Claimant also called a Mr North, solicitor who had advised the Claimant in relevant respects in 2001 and in 2005 and he was cross-examined by counsel for HMRC.
Findings of fact
At the end of the trial, there was little or no dispute about the facts although there remained considerable argument as to the right analysis of the transactions of 24 and 27 March 2006. I will now set out my findings as to the essential facts.
In 2002, the Claimant and the First Defendant acquired the house at 23 Lathbury Road, Oxford and they were registered as the joint registered proprietors of it at the Land Registry under Title No. ON234445. I am not clear whether they were joint tenants or tenants in common in equity although I note that in an email of 13 January 2006, the Claimant stated that he and his wife were tenants in common. They acquired the house as a family home and at all material times they lived there with their three children. Two of those children are now over 18 and one of those two is at university in Cambridge.
At all material times up to March 2006, the Claimant was domiciled in South Africa. On 9 April 2002, the Inland Revenue wrote to the Claimant's then solicitors confirming that the Claimant was being treated as not domiciled in the United Kingdom at that time. The Claimant had income arising outside the United Kingdom and for that, and other, reasons he sought this confirmation from the Inland Revenue.
At all material times up to March 2006, the First Defendant was also domiciled in South Africa. The First Defendant had not sought and had not been given a confirmation from the Inland Revenue as to her non-United Kingdom domicile. Her income position meant that it was not of any importance for her to seek such confirmation.
The effect of section 267(1)(b) of IHTA was that, from 6 April 2006, the Claimant (and, indeed, the First Defendant) would be treated for the purposes of IHTA as domiciled in the United Kingdom. This was because, by that date, the Claimant and the First Defendant would have been resident in the United Kingdom for the period of time referred to in that sub-section.
The Claimant wished to take steps to mitigate the consequences of his being treated for the purposes of IHTA as being domiciled in the United Kingdom. The Claimant sought and obtained advice as to what steps were open to him in this respect. In particular, he obtained advice on that question in November 2005. He was advised that his position would be improved if he placed the house in Oxford into an interest in possession settlement. The advice was sought by the Claimant alone and the advice did not directly consider the separate position of the First Defendant nor the fact that the house was in joint names.
As the law stood prior to 22 March 2006, if the Claimant were the sole owner of the house and placed it into an interest in...
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