Rysaffe Trustee Company (CI) Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | Lord Justice Mummery |
| Judgment Date | 20 March 2003 |
| Neutral Citation | [2003] EWCA Civ 356 |
| Docket Number | Case No: A3/2002/1459 |
| Court | Court of Appeal (Civil Division) |
| Date | 20 March 2003 |
[2003] EWCA Civ 356
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (MR JUSTICE PARK)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Schiemann
Lord Justice Mummery and
Lord Justice Dyson
Case No: A3/2002/1459
MR HUGH McKAY (instructed by the Solicitor of Inland Revenue) for the Appellant
MR DAVID EWART (instructed by Howes Percival) for the Respondent
Introduction
Mr Richard Utley and Mr John Utley are brothers. They are domiciled in the United Kingdom. In 1984 they were the principal shareholders in a private company, Richard Utley Limited (the Company). In February and March of 1984 each of them settled property on similar discretionary trusts. Each brother executed five trust deeds in respect of initial nominal sums of £10. Shares held by each of them in the Company were added to the settlements by a process of bonus issues, renunciations and re-designations. So, for instance, each of the five settlements made by Mr Richard Utley now holds 6,900 "A" ordinary shares of 10p each in the Company. The settlements had overseas trustees. The present sole trustee is the respondent Rysaffe Trustee Company (CI) Limited (Rysaffe), which is resident in Guernsey.
There is a disagreement between Rysaffe and the Commissioners of Inland Revenue (CIR) about the impact of the special legislative regime imposing a periodic charge to inheritance tax on discretionary trusts. The disputed issues arise in the context of determining, for inheritance tax purposes, the number of relevant settlements and consequently the valuation of the holdings of shares comprised in the settlements.
On 17 April 2000 the CIR, who are the appellants, issued two Notices of Determination against Rysaffe. One was in respect of Mr Richard Utley's settlements. The other was in respect of Mr John Utley's settlements. The Notices related to the charge under the Inheritance Tax Act 1984 (the 1984 Act), which applies every 10 years to a discretionary settlement created by a settlor domiciled in the United Kingdom. The CIR contend that, on the true construction of the relevant provisions in the 1984 Act, the holdings of shares comprised in five identical "funds" settled by each brother are to be taken to be property comprised in one settlement, not in five separate settlements, as Rysaffe contends is the position under the 1984 Act, as well as under the general law of trusts. So the CIR submit that the amount of inheritance tax should be calculated on the basis that the settled shares were, in the case of each brother, all comprised in one settlement each. So, in the case of Mr Richard Utley's settlements, inheritance tax should be calculated on the value of the total of 34,500 shares, taken as comprised in one settlement, rather than on the value of five separate parcels of 6,900 shares in each of his five settlements. The one settlement in question is said to have commenced on the first transfer of property into any of the settlements made by the brother in question in 1984.
The case has been argued below and before this court on the basis that the CIR's approach of one settlement in the case of each brother results in a larger liability to inheritance tax than if, as Rysaffe contends, the value of the total number of settled shares in the company was fragmented into five identical (though discrete) settlements by each brother. Rysaffe accepts that, if the CIR are correct, the rate of tax charged is affected, but it does not accept that the value of the settled shares is necessarily affected.
On 17 October 2001 Rysaffe's appeal on the points of principle concerning the definition of "settlement" (s 43) in, and the scope of " associated operations" (s 268) under, the 1984 Act was dismissed by the Special Commissioner (Dr A N Brice). Her decision, which is reported at [2001] STC (SCD) 225, was that-
"64. …there were associated operations within the meaning of section 268(1)(b) and [that] they were dispositions of property whereby property was held in trust within the meaning of section 43(2). There was therefore one settlement within the meaning of section 43(2) and for the purposes of section 64."
On 31 May 2002 Park J allowed Rysaffe's appeal. His judgment is reported at [2002] STC 872. His decision was that, under the general law, each brother had made five separate settlements; that s 43 of the 1984 Act did not reduce the five settlements to one settlement; that there were five charges to inheritance tax; and that, to bring the property within the charge to tax, it was neither appropriate nor necessary to consider whether the five settlements were created by "associated operations."
The CIR appeal with the permission of this court.
I would dismiss the CIR appeal on the ground that Park J was correct in holding that (a) inheritance tax should be calculated on the basis that each brother made five separate settlements; (b) s 43 of the 1984 Act does not entitle the CIR to treat five settlements as if they were one settlement.
As in the decisions below, I shall, for the purposes of this judgment, concentrate on the settlements made by Mr Richard Utley, but the result of the appeal also governs Mr John Utley's settlements.
The Legislation
It is common ground that the charge at the ten year anniversary of a discretionary trust is calculated at the specified rate on the value of the relevant property "comprised in a settlement." See ss 58, 64, 66 and 67 of the 1984 Act.
Section 43 contains the critical provisions concerning settlements.
"(1) The following provisions of this section apply for determining what is to be taken for the purposes of this Act to be a settlement and what property is, accordingly, referred to as property comprised in a settlement or as settled property.
(2) "Settlement" means any disposition or dispositions of property, whether effected by instrument, by parol or by operation of law, or partly in one way and partly in another, whereby the property is for the time being-
(a) held in trust for persons in succession or for any person subject to a contingency, or
(b) held by trustees on trust to accumulate the whole or part of any income of the property or with power to make payments out of that income at the discretion of the trustees or some other person, with or without power to accumulate surplus income, or
(c) charged or burdened (otherwise than for full consideration in money or money's worth paid for his own use or benefit to the person making the disposition) with the payment of any annuity or other periodical payment payable for a life or any other limited or terminable period,
or would be so held or charged or burdened if the disposition or dispositions were regulated by the law of any part of the...
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