Routier v Revenue and Customs Comrs
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Rose DBE |
| Judgment Date | 18 September 2014 |
| Neutral Citation | [2014] EWHC 3010 (Ch) |
| Docket Number | Case No: CH/2013/0499 |
| Court | Chancery Division |
| Date | 18 September 2014 |
[2014] EWHC 3010 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Rose DBE
Case No: CH/2013/0499
Richard Vallat (instructed by Thomas Eggar LLP) for the Appellants
David Yates (instructed by the General Counsel and Solicitor for HM Revenue & Customs) for the Respondents
Hearing date: 28 July 2014
This appeal raises the question whether the disposition in the will of the late Beryl Coulter is exempt from inheritance tax because it comprises property which is given to charities within the meaning of section 23 of the Inheritance Tax Act 1984 ('the IHTA'). The appeal is brought by the Appellants who are the executors of Mrs Coulter's will. They challenge the notices of determination given by the Respondents ('HMRC') on 29 May 2013 determining that relief under section 23 is not available. I gave permission for the appeal to be brought in the High Court rather than before the First-tier Tribunal by order dated 19 November 2013, pursuant to section 222(3)(b) of the IHTA. The liability to tax if HMRC are correct in their assessment that the disposition is not exempt is for a sum between £591,724 and £633,571 – there is some difficulty in determining this more precisely but that is not relevant to this dispute.
Mrs Coulter died on 9 October 2007 and was domiciled in Jersey at the date of her death. Her will is dated 1 October 2004. Probate was granted in the Probate Division of the Royal Court of Jersey on 25 October 2007. In her will Mrs Coulter left a number of legacies to various people (totalling £210,000). As to the residue, the will provides that it is to given to her executors to be held on trusts (referred to as the Coulter Trust):
'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 (hereinafter known as "the Incorporated Body").'
The will set out express conditions to which the trust was subject, including a condition that the money must not be used for buying the land because the provision of the land by the Incorporated Body or the Parish of St Ouen in Jersey ('the Parish') was a precondition to the release of any funds.
Clause 3 of the will provided a gift in default:
'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 identical conditions as those set out in paragraph 2(iii), 2(iv) and 2(v) hereof.'
The will set out the powers of the trustees and finally provided by clause 18 that:
'The Proper Law appertaining to the Coulter Trust shall be the Law of the Island of Jersey.'
It became apparent after Mrs Coulter's death that HMRC did not accept that the gift of the residue to the Coulter Trust was exempt from inheritance tax. On 28 April 2009 the Appellants entered into a Deed of Variation with representatives of the Parish and of Jersey Hospice Care. By the Deed of Variation the parties declared and directed that the will shall take effect with a new provision replacing the gift of the residue. The replacement clause provided for an absolute gift to Jersey Hospice Care of £10,000 and an absolute gift of the residue to the Appellants to use for the purpose of the construction of homes for the elderly of the Parish. The Deed of Variation contained a further clause which said:
'AND PROVIDED FURTHER THAT my trustees shall have the power to vary the terms of the Coulter Trust in so far as may be necessary in order to comply with any legal requirement in Jersey or elsewhere in order to ensure that the Coulter Trust shall be operated exclusively so as to be held on trust for charitable purposes only as required by section 23 of the Inheritance Tax Act 1984 (a statute enacted by the Houses of Parliament in the United Kingdom) and that if my Trustees make any such variation of the terms of the Coulter Trust such variation shall be deemed to be incorporated into the terms of this my Will with effect from the date of my death.'
There was a second deed of variation entered into when the Appellants retired as trustees (but not as executors) and appointed Thomas Eggar Trust Corporation Ltd as the sole trustee on 1 October 2010. That new trustee executed a deed on 12 October 2010 amending clause 18 of the will to replace the reference to Jersey law with a reference to the law of England and Wales ('the Proper Law Variation'). They did this pursuant to the power in the earlier Deed of Variation. The Coulter Trust was registered as a charity by the UK Charity Commission on 14 February 2011.
The IHTA provides as follows:
i) Section 1 provides that inheritance tax shall be charged on the value transferred by a chargeable transfer.
ii) Section 2(1) provides that a chargeable transfer is a transfer of value which is made by an individual but is not (by virtue of Part II of the IHTA or any other enactment) an exempt transfer.
iii) Section 4(1) provides that on the death of any person tax shall be charged as if, immediately before his death, he had made a transfer of value and the value transferred had been equal to the value of his estate immediately before his death.
Part II of the IHTA sets out which transfers are exempt. Section 23 provides:
' 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.'
Section 272 of the IHTA provides that 'charity' and 'charitable' have the same meanings as in the Income Tax Acts. In 2007 that meaning could be found in section 989 of the Income Tax Act 2007 which defines a charity as 'any body of persons or trust established for charitable purposes only'.
There was no definition of 'charitable purposes' in the IHTA or the Income Tax Acts so the words have their English common law meaning. I will refer to those purposes as 'UK law charitable purposes' though such purposes can be fulfilled by work carried out entirely overseas. The definitions in the Charities Act 2006 only came into force on 1 April 2008, after Mrs Coulter's death.
Subsection (6) of section 23 read in conjunction with section 989 of the Income Tax Act 2007 therefore can be read as having two limbs —
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;
ii) the second limb exempts the transfer if the property is held on trust for charitable purposes only.
So far as variations of dispositions are concerned, section 142 of the IHTA provides:
' 142 Alteration of dispositions taking effect on death.
(1) Where within the period of two years after a person's death—
(a) any of the dispositions (whether effected by will, under the law relating to intestacy or otherwise) of the property comprised in his estate immediately before his death are varied, or
(b) the benefit conferred by any of those dispositions is disclaimed,
by an instrument in writing made by the persons or any of the persons who benefit or would benefit under the dispositions, this Act shall apply as if the variation had been effected by the deceased or, as the case may be, the disclaimed benefit had never been conferred.'
There are certain matters that are common ground between the parties for the purposes of the proceedings before me.
i) The objects of the Coulter Trust (both before and after the Deed of Variation) and of Jersey Hospice Care are exclusively UK law charitable purposes.
ii) No instrument varying the will was made by the Appellants between the date of the Deed of Variation and the Proper Law Variation.
iii) Section 142 of the IHTA did not apply to give the Proper Law Variation retrospective effect.
iv) The Coulter Trust was not established in the United Kingdom.
The issue between the parties is whether the gift to the Coulter Trust falls within section 23(1) because it falls within the second limb of section 23(6), being a gift which is held on trust for charitable purposes only. The Appellants argue that the plain words of subsection (6) indicate that all that is needed for the exemption to apply is that (i) there is a trust – and there is no doubt that the Coulter Trust is a trust – and (ii) the trust's purposes are exclusively UK law charitable purposes – and HMRC have accepted that this is the case. HMRC say, however, that there is an implied requirement in both limbs of subsection (6) that the body of persons or trust (in the first limb) or the trust (in the second limb) are governed by the law of some part of the United Kingdom. I shall refer to that as the body of persons or trust needing to have a 'UK link'. HMRC therefore conclude that because the Coulter Trust is governed by Jersey law it...
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