Rysaffe Trustee Company (CI) Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 31 May 2002 |
| Neutral Citation | [2002] EWHC 1114 (Ch) |
| Date | 31 May 2002 |
| Court | Chancery Division |
[2002] EWHC 1114 (Ch).
Chancery Division.
Park J.
David Ewart (instructed by Howes Percival) for the taxpayer.
Hugh McKay (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
Bond (HMIT) v Pickford TAX[1983] BTC 313
Fitzwilliam v IR Commrs TAXTAXTAXWLR[1990] BTC 8003 (ChD); [1992] BTC 8054 (CA); [1993] BTC 8003; [1993] 1 WLR 1189 (HL)
IR Commrs v Macpherson TAXELR[1988] BTC 8065; [1989] AC 159
Reynaud v IR Commrs SCD(1999) Sp C 196
Roome v Edwards ELR[1982] AC 279
This was the taxpayer's appeal against a special commissioner's decision ((2001) Sp C 290) dismissing the taxpayer's appeal against notices issued by the Revenue in April 2000 determining that for the purposes of the charge to tax under s. 64 of the Inheritance Tax Act 1984 shares held by the taxpayer as trustee of five settlements made in 1984 were to be taken to be property comprised in one settlement.
A settlor made five identical settlements which were dated on five separate days within about a month. Each settlement was in the same form except for the date. Each of the settlements stated that the settlor had paid to the trustee the sum of £10 to be held on the trusts of the settlement and that it was contemplated that further property might be added to the settlement. At the dates of the settlements the intention was to transfer shares in a private company to the trustee, one-fifth of the total for each settlement, and that was later done.
The Inland Revenue took the view that there was only one settlement within the meaning of s. 64 of the Inheritance Tax Act 1984 for the purposes of the ten-year anniversary charge, on the basis that s. 272 of the 1984 Act provided that a "disposition" included a disposition by associated operations and that the creation of the five settlements, and the transfers of the shares to the trustee, were all associated operations within the meaning of both s. 268(1)(a) and (b). Thus there was a single settlement within the meaning of s. 43 and, at the ten-year anniversary, the tax should be charged under s. 64 at the rate applicable to the total value of the property in all five settlements. Alternatively, the Revenue argued that "settlement" was defined in s. 43 as any "disposition or dispositions of property" and that the five settlements were five dispositions of property which resulted in one settlement.
The trustee argued that s. 268(1)(a) did not apply as the operations in connection with each settlement did not affect the same property and s. 268(1)(b) did not apply because the operations had not been effected with reference to each other. The trustee also argued that each of the five settlements should be looked at separately as in trust law each settlement was a separate settlement. The special commissioner upheld the Revenue's view and dismissed the trustee's appeal. The trustee appealed to the High Court.
Held, allowing the appeal:
1. As a matter of general law the settlor had made five settlements, not one. It was up to the settlor, who placed property in trust, to determine whether he wished to create one trust or several trusts or to add more property to a settlement which had already been created in the past. One factor which demonstrated that there were five separate settlements was that they all contained powers of appointment, powers to appoint new trustees and so on, and those powers might be exercised in different ways which would make it more outwardly apparent that the settlements were five in number, not one. It was not necessary to have a statutory definition to determine whether there was one settlement or more, and if more than one, how many.
2. Section 268 was not a catch-all anti-avoidance provision which could be invoked to nullify the effectiveness of any scheme or structure which could be said to have involved more than one operation and which was intended to avoid or reduce IHT. (Fitzwilliam v IR CommrsTAX[1993] BTC 8003; [1993] 1 WLR 1189 referred to.)
3. Section 268 was not an operative provision which of itself imposed IHT liabilities. It was a definition of an expression (associated operations) which was used elsewhere. The definition only came into effect in so far as the expression "associated operations" was used elsewhere, and then only if the expression in another provision was relevant to the way in which that other provision applied to the facts of the particular case. (IR Commrs v Macpherson TAX[1988] BTC 8065; [1989] AC 159 and Reynaud v IR Commrs (1999) Sp C 196 considered.)
4. In the present case the starting point should have been to consider whether the property which the case was about was "property comprised in a settlement" within s. 64 (the charging provision) read with s. 43 (the section which explained the concepts of settlement and of property being comprised in a settlement). If it was property comprised in a settlement anyway without the need to rely on the extension of "disposition" to cover also a disposition by associated operations, the associated operations provision was not relevant. Section 43 and 64 applied and there was no need to invoke the definition of associated operations in order to make them apply. Nor was there any need to consider whether, if the definition had been potentially relevant, the facts of this case would have come within it.
5. All the parcels of shares were property comprised in settlements for the purposes of s. 64. It was neither necessary nor appropriate to invoke or to apply the extended statutory definition in order to conclude that the parcel of shares was property comprised in a settlement at the time when the ten-yearly charge fell to be applied.
Park J: Overview
[1] This is an inheritance tax (IHT) appeal from a decision of a special commissioner, Dr Brice ((2001) Sp C 290). The appeal concerns a question of principle about the IHT charge which applies every ten years to a discretionary settlement created by a settlor domiciled in the UK. The case is governed by provisions of the Inheritance Tax Act 1984 and statutory references in this judgment are to sections of that Act. Sections 221 and 222 contain provisions which permit a determination of the Revenue on a question of principle to be appealed, and the present appeal is of that nature.
[2] In 1984 Mr Richard Utley created five identical discretionary settlements on overseas trustees. The appellant in this case, Rysaffe Trustee Co (CI) Ltd, is the present trustee of the settlements. A different Rysaffe company was the trustee on the tenth anniversary of the creation of the settlements, but nothing turns on the change in the identity of the trustee. It is agreed that the provisions of the Act which impose the ten-yearly charge applied on the tenth anniversary of Mr Utley's settlements, but there is a dispute as to the manner in which they applied. If they applied on the basis that there were five separate charges, one on each of the five settlements made by Mr Utley, the aggregate IHT would be one amount. But if they applied on the basis that for IHT purposes the five settlements should be treated as one settlement, the IHT would be a different and greater amount. The Revenue ruled that IHT should be calculated on the basis that there was only one settlement, and the trustee appealed.
[3] In the first instance the appeal lay to the special commissioners. The appeal was heard by Dr Brice, and she issued her decision in October 2001 ((2001) Sp C 290). She agreed with the Revenue's ruling, and therefore dismissed the appeal. The trustee has appealed to this court. I respectfully disagree with Dr Brice. In my opinion the IHT should be calculated on the basis that there were five settlements, not one. Dr Brice found support for her conclusion in detailed provisions of the Act, in particular in provisions about associated operations. In my judgment, for the reasons which I will explain below, the provisions do not have the effects which Dr Brice ascribed to them. As a matter of the general law there were five separate settlements made by Mr Utley, and in my opinion the IHT provisions relied on by Dr Brice in support of her conclusion did not have the effect of requiring or permitting the five settlements to be treated as if they were one settlement for purposes of IHT.
[4] I should record that, around the same time as when Mr Utley made his five settlements, his brother Mr John Utley also made five settlements in the same way. Both sets of settlements were subjects of the Revenue's determination which was taken to appeal, and the outcome of this case will govern all ten settlements. The special commissioner discussed the issues with reference to the settlements created by Mr Richard Utley, and I shall do the same.
[5] Before me Mr David Ewart appeared for the appellant trustee. Mr Hugh McKay appeared for the respondent Commissioners of Inland Revenue. I am grateful to both of them for their comprehensive, clear and helpful arguments.
[6] In 1984 Mr Utley and his brother were the principal shareholders in Richard Utley Ltd. Having taken tax advice he made five identical settlements of shareholdings in the company. Dr Brice's decision does not expressly say so, but I assume (as I am sure that she did) that, but for the tax advice, Mr Utley would have made one settlement. In other words the reason for making five identical settlements rather than one was a belief that the IHT liabilities falling on the settled property would be lower. Originally the trustee was a Rysaffe company in Hong Kong. Recently it was replaced as trustee by the present appellant, which is based in Guernsey. The Rysaffe trust companies are associated with a well known firm of chartered accountants.
[7] Full details of how the settlements were brought into being are contained in Dr Brice's decision. I will not repeat all of the details here: they...
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