Routier and Another v The Commissioners for HM Revenue and Customs

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLady Justice Arden,Mr Justice Green,Lord Briggs of Westbourne
Judgment Date17 October 2017
Neutral Citation[2017] EWCA Civ 1584
Docket NumberCase No: A3/2014/3253
Date17 October 2017

[2017] EWCA Civ 1584





The Hon Mrs Justice Rose

[2014] EWHC 3010 (Ch)

Royal Courts of Justice

Strand, London, WC2A 2LL


Lady Justice Arden

Lord Briggs of Westbourne


Mr Justice Green

Case No: A3/2014/3253

Routier & Anr
The Commissioners for HM Revenue and Customs

Richard Vallat and Rory Mullan (instructed by Irwin Mitchell Solicitors) for the Appellants

David Yates (instructed by HMRC) for the Respondents

Conrad McDonnell (instructed by HM Attorney General for Jersey) for the Intervener

Hearing dates: 21–22 June 2017

Approved Judgment

Lady Justice Arden



Inheritance tax, gifts to charities and freedom of capital


This adjourned appeal is about the restriction imposed by section 23 of the Inheritance Tax Act 1984 " IHTA", as interpreted by this Court on an earlier hearing of this appeal, on inheritance tax relief for legacies and gifts to charities, to legacies and gifts to UK charities which are subject to the supervision of the UK courts. The question now before this Court now is whether this restriction ("the Restriction") violates the EU law principle of freedom of movement of capital so as not to be enforceable in relation to a legacy of an estate with assets situate in the UK to a Jersey charity.


That raises three sub-issues: (1) whether Jersey is to be treated as part of the UK for the purposes of this question, so that EU law principles on freedom of movement of capital do not apply, or whether for these purposes it is to be treated as a third country (Issue 1); (2) whether the Restriction would be treated as justified in EU law on the grounds of effective fiscal supervision ("EFS") (Issue 2); and (3) whether, if the answer to Issue (2) is yes, IHTA, s23 could be interpreted in conformity with EU law (Issue 3). If the answers to Issues (1) and (2) are not clear, we are asked to refer questions to the Court of Justice of the European Union ("the CJEU") for a preliminary ruling under Article 267 of the Treaty on the Functioning of the European Union ("TFEU"). (I use the term CJEU to include its predecessor, the European Court of Justice).


the coulter trust and earlier hearing of this appeal


The late Ms Beryl Coulter died in Jersey on 9 October 2007 (before the coming into force of the Lisbon Treaty), leaving her residuary estate in the UK on trust ("the Coulter Trust") for the purpose of building homes for the care of elderly people resident in St Ouen in Jersey. There was a gift over in favour of Jersey Hospice Care. The Coulter Trust was established under and subject to Jersey law. The respondents, HMRC, determined that the appellant executors were liable to pay inheritance tax on the residuary gift to the Coulter Trust without being entitled to relief under IHTA, s 23 because that relief was not available unless the Coulter Trust was a charity for the purposes of the law of the United Kingdom, which it was not.


The amount of inheritance tax and interest payable, if the appeal is unsuccessful, as at the date of the hearing of this appeal was agreed at £591,724.


The Coulter Trust has now been registered as a charity under the law of England and Wales.


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, s23 on its true interpretation contained two requirements (referred to together below as "the Restriction"): first, that the trust was established under UK law and, second that the UK courts would have jurisdiction over it (for that purpose there must be at least one trustee resident in the UK). The conclusion of this Court was largely based on the legislative history of the provisions.


This judgment addresses the outstanding questions of law raised by the appellants. This Court did not hear argument on these questions at the earlier hearing.


freedom of movement of capital: brief introduction


Article 56 of the EC Treaty (" Article 56 EC") (now Article 63 TFEU) reads:

1. Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.

2. Within the framework of the provisions set out in this Chapter, all restrictions on payments between Member States and between Member States and third countries shall be prohibited.


It is common ground that Article 56 EC applies to gifts to charities. Thus, in C-513/03 Van Hilten-van der Heijden v Inspecteur van de Belastingdienst, the CJEU held:

It follows that an inheritance is a movement of capital within the meaning of Article 73b of the Treaty [later Article 56 EC] (see to that effect, also, Case C-364/01 Barbier [2003] ECR I-15013, paragraph 58), except in cases where its constituent elements are confined within a single Member State.


It is common ground that the limitation of tax relief to gifts to UK bodies restricts free movement of capital. Freedom of movement of capital reflects a policy of the liberalisation of capital movements within the EU and the promotion of economic efficiency. The imposition of a tax as in this case may affect the ability of a charitable trust from outside the UK to obtain gifts and legacies from the UK for the purposes of carrying out its activities.


effective fiscal supervision as justification for breach (in brief)


A restriction on freedom of movement of capital can be justified where the aim of the restriction is to ensure the EFS. HMRC rely on this as justification for breach of the principle of freedom of movement of capital in this case.


In particular HMRC contend that they must have the right to verify any information about a person claiming relief on gifts about whether the donee is in reality a charity. They contend that the absence of the right to verify is one of the reasons why the principle of freedom of movement of capital does not apply and why this appeal must fail.


EU measures for mutual assistance between taxing Authorities


Relevant to EFS and the avoidance of distortions in capital movements are the measures which the EU has adopted for cross-border co-operation between taxing authorities in the field of certain direct taxes. In 1977, the EU adopted Directive 1977/799/EEC. This was replaced in 2004 by Directive 2004/106/EEC. I will refer to these Directives below as the "mutual assistance directives". However, these did not apply to UK inheritance tax or its predecessor, capital transfer tax.


The EU has extended the measures for co-ordination between EU and EEA taxing authorities. In the Fourth Money-Laundering Directive ("4MLD") ( Directive 2015/849/EEC) (not cited by counsel), as implemented in the UK by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, trustees of (among other bodies) charities must register particulars of the trust, including its trustees, beneficiaries, assets and advisers, with HMRC. A competent authority (as defined) from another EU or EEA state may request information shown on that register and HMRC has reciprocal rights in other EU and EEA states.


subsequent change in statutory meaning of charity for inheritance tax purposes


Subsequent to Ms Coulter's death, and following the CJEU in C-318/07 Persche v Finazamt Ludenscheid [2009] STC 586 (see paragraphs 51, 52 and 57 below), Parliament changed the law so that it is sufficient for inheritance tax relief if the charity is regulated by the courts of one of the member states of the EU, Norway, Iceland or Liechtenstein: Finance Act 2010, schedule 6, paragraph 1 and Taxes (Definition of Charity) (Relevant "Territories" (Amendment) Regulations 2014. This change was achieved by amendment to the definition of charity with effect from March 2012, subject to transitional provisions. The same change to the definition was made in respect of donations by UK taxpayers in other ways (see, for example, Corporation Taxes Act 2010, Part 6), and to charitable payments by charities to charities abroad under the Income Taxes Act 2007 ("ITA"), s547.





Jersey is one of the territories which the EC Treaty, and now the TFEU, treat as a special case, and this issue requires this Court to consider the effect of the provisions which have that effect, in so far as that is a question of EU law. It is convenient to set out the relevant provisions before summarising the submissions.


Article 299(6) of the EC Treaty (now Article 355(5) of the TFEU) provides that:

(6) Notwithstanding the preceding paragraphs: (a) this Treaty shall not apply to the Faeroe Islands; (b) this Treaty shall not apply to the sovereign base areas of the United Kingdom of Great Britain and Northern Ireland in Cyprus; (c) this Treaty shall apply to the Channel Islands and the Isle of Man only to the extent necessary to ensure the implementation of the arrangements for those islands set out in the Treaty concerning the accession of new Member States to the European Economic Community and to the European Atomic Energy Community signed on 22 January 1972 ["the Accession Treaty"]. (definition added)


Protocol No 3 to the Accession Treaty (as defined in Article 299(6)) concerns the Channel Islands and the Isle of Man. It provides that customs rules apply to them as they do to the UK (Article 1); that Channel Islanders and Manxmen living in the UK could not benefit from freedom of movement (Article 2); that the provisions of the Euratom Treaty applied to them...

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