RUSSELL'S EXECUTOR v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 27 February 1992 |
| Date | 27 February 1992 |
| Docket Number | No. 5. |
| Court | House of Lords |
HL
Lord Keith of Kinkel, Lord Roskill, Lord Griffiths, Lord Jauncey of Tullichettle and Lord Lowry.
RevenueCharityCharitable purposesCapital transfer taxExempt transferSports facilitiesBequest for use in connection with particular sports centre "or some similar purpose in connection with sport"Whether exempt transferRecreational Charities Act 1958 (6 & 7 Eliz. II, cap. 17), sec. 11Finance Act 1975 (cap. 7), Sched. 6, para. 10.2
A testator died leaving a will in which he directed that the residue of his estate be left "to the Town Council of North Berwick for use in connection with the Sports Centre in North Berwick or some similar purpose in connection with sport". The bequest of residue failed to take effect as by the time of the testator's death the town council of North Berwick had ceased to exist as the result of local authority reorganisation under sec. 1 (5) of the Local Government (Scotland) Act 1973. The testator's executor-nominate thereafter brought an action of multiplepoinding and exoneration, concluding for distribution of the residue of the estate among claimants found entitled to it. The executor lodged in that action an administrative claim for the approval of acy-prs scheme. The Lord Ordinary (Jauncey) held that the bequest had not fallen into intestacy and had disclosed a general charitable intention, and a scheme providing an administrative machinery and amended purposes was thereafter approved by the Court of Session. The Inland Revenue issued a notice of determination in
respect of capital transfer tax in relation to the transfer of value which was deemed to have occurred under sec. 22 (1) of the Finance Act 1975 on the death of the testator on 11th September 1982. The Revenue were of the view that the transfer of the means of the bequest was not an exempt transfer in terms of Sched. 6, para. 10 to the 1975 Act by which transfers of value attributable to property given to charities were exempt from capital transfer tax. In particular, the Revenue argued that the residue was not "held on trust" within the meaning of para. 10 (3) for the period during which it had been held by the executor for purely administrative purposes nor was it held for "charitable purposes only" since the bequest for sporting purposes was not charitable at common law. They also argued that the bequest did not fall within the terms of sec. 1 of the Recreational Charities Act 1958 as (a) for the facilities to be provided in the interests of social welfare within the meaning of sec. 1 (2) of that Act, there required to be a basis of need and social deprivation; and (b) the phrase "some similar purpose in connection with sport" was not necessarily restricted to purposes falling within the meaning of that section. The First Division of the Court of Session, sitting as the Court of Exchequer in Scotland, by a majority refused the executor's appeal and affirmed the commissioner's determination. The executor thereafter appealed to the House of LordsHeld (rev. judgment of the First Division), (1) that in order to satisfy the requirement that the facilities must be provided "in the interests of social welfare" within the meaning of sec. 1 of the 1958 Act it was not necessary for the facilities to be provided with the object of improving the conditions of life for persons who suffered from some form of social disadvantage but it was sufficient if the facilities were provided with the object of improving conditions of life for members of the community generally as required by sec. 1 (2) (b) (ii): (2) that, in deciding whether or not the second branch of the bequest of residue, referring to "some similar purpose in connection with sport," was so widely expressed as to admit of the funds being applied in some manner which fell outside the requirements of sec. 1 of the 1958 Act, it was appropriate in this case to adopt the benignant approach which had regularly been favoured in interpretation of trust deeds capable of being regarded as evincing a charitable intention, for the importation into Scots law, for tax purposes, of the technical English law of charity involved that a Scottish judge should approach any question of construction arising out of the language used in the relevant instrument in the same manner as would an English judge who had to consider its validity as a charitable gift; (3) that as the English judge would adopt the benignant approach on setting about that task by adopting that approach, the intention of the testator was that any other purpose to which the town council might apply the bequest or any part of it should also display the leading characteristics of the sports centre, namely, the nature of the facilities which were provided there and the fact that those facilities were available to the public at large, so that, as both parts of the bequest were charitable within the meaning of sec. 1 of the 1958 Act, the funds in question qualified for exemption from capital transfer tax; and appeal allowed.
(In the Court of Session, 15th March 1991.)
David James Guild, W.S., the executor-nominate on the estate of the late James Young Russell, appealed to the Court of Session sitting as the Court of Exchequer in Scotland against a notice of determination made by the Commissioners of Inland Revenue on 8th June 1990 in respect of capital transfer tax under the Finance Act 1975. The deceased had died on 11th September 1982, leaving a will dated 7th April 1971 and registered in the Books of Council and Session on 4th September 1992 in which the residue clause was in the following terms: "And I leave the whole, rest, residue and remainder of my said means and estate to the Town Council of North Berwick for the use in connection with the Sports Centre in North Berwick or some similar purpose in connection with sport and the receipt of the Treasurer for the time being of the burgh of North Berwick shall be sufficient receipt and discharge for my Executor." The notice of determination made by the commissioners determined that the transfer of value which was attributable to the property comprising the deceased's residuary bequest was not an exempt transfer for the purposes of para. 10 of Sched. 6 to the Finance Act 1975. The executor had previously brought in the Court of Session an action of multiplepoinding and exoneration in respect of the bequest. The cause called before the Lord Ordinary (Jauncey) on procedure roll on 4th, 25th and 26th June 1986. At advising, on 5th August 1986, the Lord Ordinary ranked and preferred the executor and real raiser to the fundin medio for the purposes of his administrative claim which he had lodged for the approval of a cy-prs scheme: [seeRussell's Exor. v. BaldenUNK 1989 S.L.T. 177]. A scheme providing an administrative machinery and amended purposes was subsequently approved by the Court of Session. The Commissioners contended that the amended purposes of the bequest failed to constitute charitable purposes in terms of the Income Tax Acts and that, accordingly, capital transfer tax was exigible. The executor thereafter appealed to the Court of Session under para. 7 (3) of Sched. 4 to the Finance Act 1975.
The cause called before the First Division, comprising the Lord President (Hope), Lord Mayfield and Lord McCluskey, for a hearing thereon on 12th and 13th February 1991. On 13th February 1991 their Lordships made avizandum. At advising, on 15th March 1991, their Lordships (Lord McCluskey dissenting) refusedthe appeal.
LORD PRESIDENT (Hope).This is an appeal under para. 7 (3) of Sched. 4 to the Finance Act 1975 (the 1975 Act) (now sec. 222 (3) of the Inheritance Tax Act 1984 (the 1984 Act)) against a notice of determination dated 8th June 1990 which was made by the Inland Revenue Commissioners in respect of a charge to capital transfer tax. The notice was issued in relation to the transfer of value which was deemed to have occurred under sec. 22 (1) of the 1975 Act on the death of the late James Young Russell (the testator) on 11th September 1982. It stated that such part of that transfer of value as was attributable to the property comprised in the bequest of his residuary estate in his will dated 7th April 1971 was not an exempt transfer for the purposes of para. 10 of Sched. 6 to the 1975 Act. In terms of that paragraph transfers of value which are attributable to property which is given to charities are exempt from capital transfer tax, to the extent of the value transferred by the gift. The point at issue in this case depends on the meaning and effect of para. 10 (3) of Sched. 6 which provides: "For the purposes of this paragraph property is given to charities if it becomes the property of charities or is held on trust for charitable purposes only." The application of that provision to the bequest of residue in this case raises two questions on which we listened to a careful and interesting argument. The first is whether, in view of a defect in the bequest which led to delay until it could receive effect, the residue can be said to have been held on trust for charitable purposes as from the date of death of the testator. The second is whether, having regard to the terms of the residue clause, the bequest can be said to have been for charitable purposes only.
The residue clause was in these terms: "And I leave the whole, rest, residue and remainder of my said means and estate to the Town Council of North Berwick for the use in connection with the Sports Centre in North Berwick or some similar purpose in connection with sport and the receipt of the Treasurer for the time being of the Burgh of North Berwick shall be a sufficient receipt and discharge for my Executor."
The testator died on 11th September 1982, and the town council of North Berwick was no longer in existence at that date. This was because, as a result of sec. 1 (5) of the Local Government (Scotland) Act 1973 all local government areas existing...
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