Roome v Edwards
| Jurisdiction | England & Wales |
| Judge | Lord Wilberforce,Lord Edmund-Davies,Lord Russell of Killowen,Lord Keith of Kinkel,Lord Roskill |
| Judgment Date | 05 February 1981 |
| Judgment citation (vLex) | [1981] UKHL J0205-2 |
| Court | House of Lords |
[1981] UKHL J0205-2
Lord Wilberforce
Lord Edmund-Davies
Lord Russell of Killowen
Lord Keith of Kinkel
Lord Roskill
House of Lords
My Lords,
This is an appeal by the Revenue in a case concerning capital gains tax. The relevant facts appear complicated, but can be simplified to the following essentials. A full statement is to be found in the case stated by the Special Commissioners.
On 24th March 1944 there was made a marriage settlement on the marriage of Mr. and Mrs. Lombard-Hobson. This was in a usual form, conferring a life interest on the wife followed by a protected life interest for her husband, a special power of appointment exercisable by the spouses jointly, or by the survivor, in favour of issue, and a trust, in default, for children at twenty-one, or if female, on marriage. There were a number of other powers and administrative provisions usual in marriage settlements.
There were two daughters of the marriage born in 1948 and 1951.
On 20th October 1955 (this event is critical) Mr. and Mrs. Lombard-Hobson exercised their joint power of appointment so that part of the settled property (the "1955 fund") then worth about £13,000 should be held, subject to prior interests, in trust for the elder of the daughters on attaining twenty-five, or if she died under twenty-five for her children. Mrs. Lombard-Hobson also "assigned and surrendered" her life interest to the trustees, but not so as to accelerate Captain Lombard-Hobson's expectant life interest. The Trustees were to accumulate the interest of the fund with power to apply all accumulations for the daughter's benefit. Thereafter the trusts of the 1955 fund and of the remainder of the settled property ("the main fund") were administered separately, and separate accounts were kept and tax returns made. The present trustees of the 1955 fund are the respondents, Mr. Roome and Mr. Denne. When Mr. Denne was appointed, in 1972, as a separate trustee of the 1955 Fund, together with Mr. Roome, it was stated in the Deed of Appointment that this was done under section 37(1))( b) of the Trustee Act 1925. Mr. Roome and Mr. Denne have at all times been resident in the United Kingdom.
In 1972 some elaborate transactions took place, including an application to the court under the Variation of Trusts Act 1958. Only two are relevant for present purposes:
(i) On 21st March 1972 two persons resident in the Cayman Islands were appointed trustees of the Main Fund�in place of the existing trustees who were then Mr. Roome and a Mr. Askew and the assets of the Main Fund were vested in them. So there are now two sets of trustees, the respondents of the 1955 Fund, and the Cayman Island Trustees of the Main Fund.
(ii) On 13th April 1972 a Cayman Islands Company called Royal Oak Investments Ltd. ("Royal Oak") became absolutely entitled to the Main Fund as against the trustees of the Main Fund. This brought about a "deemed disposal" for the purposes of the capital gains tax of all the property vested in the trustees of the Main Fund viz. the Cayman Islands Trustees. Among the assets to which Royal Oak became absolutely entitled as against the trustees of the Main Fund was a valuable property in Lincoln's Inn Fields, London, and it is mainly in respect of this that a claim for capital gains tax is made. The Revenue are seeking to make good this claim against the respondents, who are trustees only of the 1955 Fund.
There are two issues for decision:
1. Whether the respondents and the Cayman Islands trustees were on 13th April 1972 trustees of a single settlement for the purposes of the capital gains tax or whether the respondents are trustees of a separate settlement from the settlement of the Main Fund.
2. Whether if there was a single settlement a chargeable gain arising on the deemed disposal on 13th April 1972 accrued to all the trustees of the single settlement, or only to the Cayman Islands trustees. If the former, the Revenue could assess the respondents as residents in the United Kingdom in respect of this gain.
If the Revenue is to succeed in the appeal, both of the above questions must be answered affirmatively; they were so answered by the Special Commissioners. On appeal to the High Court, Brightman J. answered the first question "yes" but the second question "no". In the Court of Appeal, these answers were reversed, so that the respondents succeeded in both courts on different grounds.
There are a number of provisions in the Finance Act 1965 which have had to be examined. I think that those most relevant are the following: I cite them from the original Act of 1965, prior to amendment and consolidation.
"25.�(1) In relation to settled property, the trustees of the settlement shall for the purposes of this Part of this Act be treated as being a single and continuing body of persons (distinct from the persons who may from time to time be the trustees), and that body shall be treated as being resident and ordinarily resident in the United Kingdom unless the general administration of the trusts is ordinarily carried on outside the United Kingdom and the trustees or a majority of them for the time being are not resident or not ordinarily resident in the United Kingdom:�.
(3) On the occasion when a person becomes absolutely entitled to any settled property as against the trustee all the assets forming part of the settled property to which he becomes so entitled shall be deemed to have been disposed of by the trustee, and immediately reacquired by him in his capacity as a trustee within section 22(5) of this Act, for a consideration equal to their market value. .�
(11) For the purposes of this section, where part of the property comprised in a settlement is vested in one trustee or set of trustees and part in another (and in particular where settled land within the meaning of the Settled Land Act 1925 is vested in the tenant for life and investments representing capital money are vested in the trustees of the settlement), they shall be treated as together constituting and, in so far as they act separately, as acting on behalf of a single body of trustees. .�"
Schedule 10:
"12.�(1) Capital gains tax chargeable in respect of chargeable gains accruing to the trustees of a settlement or capital gains tax due from the personal representatives of a deceased person may be assessed and charged on and in the name of any one or more of those trustees or personal representatives, but where an assessment is made in pursuance of this sub-paragraph otherwise than on all the trustees or all the personal representatives the persons assessed shall not include a person who is not resident or ordinarily resident in the United Kingdom."
The first question. The Finance Act 1965 contains no definition of "settlement". As to "settled property" section 45 merely states that the words mean, subject to subsection 8 [concerned with unit trusts], any property held in trust other than property to which section 22(5) applies [property held by a nominee]. So a "settlement" must be a situation in which property is held in trust. But when is a settlement a separate settlement?
There are a number of obvious indicia which may help to show whether a settlement, or a settlement separate from another settlement, exists. One might expect to find separate and defined property; separate trusts; and separate trustees. One might also expect to find a separate disposition bringing the separate settlement into existence. These indicia may be helpful, but they are not decisive. For example, a single disposition, e.g. a will with a single set of trustees, may create what are clearly separate settlements, relating to different properties, in favour of different beneficiaries, and conversely separate trusts may arise in what is clearly a single settlement, e.g. when the settled property is divided into shares. There are so many possible combinations of fact that even where these indicia or some of them are present, the answer may be doubtful, and may depend upon an appreciation of them as a whole.
Since "settlement" and "trusts" are legal terms, which are also used by business men or laymen in a business or practical sense, I think that the question whether a particular set of facts amounts to a settlement should be approached by asking what a person, with knowledge of the legal context of the word under established doctrine and applying this knowledge in a practical and common-sense manner to the facts under examination, would conclude. To take two fairly typical cases. Many settlements contain powers to appoint a part or a proportion of the trust property to beneficiaries: some may also confer power to appoint separate trustees of the property so appointed, or such power may be conferred by law (Trustee Act 1925, section 37). It is established doctrine that the trusts declared by a document exercising a special power of appointment are to be read into the original settlement ( Muir v. Muir 1943 A.C. 468). If such a power is exercised, whether or not separate trustees are appointed, I do not think that it would be natural for such a person as I have presupposed to say that a separate settlement had been created: still less so if it were found that provisions of the original settlement continued to apply to the appointed fund, or that the appointed fund were liable, in certain events, to fall back into the rest of the settled property. On the other hand, there may be a power to appoint and appropriate a part or portion of the trust property to beneficiaries and to settle it for their benefit. If such a power is exercised, the natural conclusion might be that a separate settlement was created, all the more so if a complete new set of trusts were declared as to the appropriated property,...
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