Spens v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 20 March 1970 |
| Year | 1970 |
| Date | 20 March 1970 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Surtax-Settlement - Invalid advancement from settlement A to settlement B - Income paid to beneficiary under settlement B - Interest of life beneficiary under settlement A subsequently varied by Court Order-Validity of advancement implicit in variation arrangement-Whether beneficiary under settlement A liable to surtax on income of advanced fund-Whether assessment barred by estoppel per rem judicatam.
Under a settlement made in 1932 a fund was held, as to one half, on protective trusts for the Appellant in the first case during her life with remainder to her children or such remoter issue as she should by will appoint. She had only one child, a son D born in 1940. On 19th March 1952 a third party paid £50 to the individuals who were the trustees of the 1932 settlement as a settled fund to be held on discretionary trusts for distribution not later than 21 years from D's death among the class of D and his issue and meanwhile to pay or apply the income to or for the benefit of members of that class. On 20th March 1952 the trustees of the 1932 settlement, in purported exercise of the statutory power of advancement and with the consent of the Appellant, transferred to the trustees of the 1952 settlement investments of the value of £20,000 (hereinafter called "the advanced fund") to be treated in all respects as part of the trust fund under the 1952 settlement. From 1952 the income of the advanced fund was paid or applied by the trustees to or for the benefit of D. On 20th January 1960, on an application to which D and the trustees, among others, were respondents, an Order was made under the Variation of Trusts Act 1958 approving an arrangement varying the trusts of the 1932 settlement affecting the Appellant's settled share, defined by reference to a list of investments which did not include those in the advanced fund. At no stage in the proceedings was the attention of the Court called to the purported advancement which all parties then believed to be valid.
Assessments to surtax for the years 1955-56 to 1959-60 were made on the Appellant on the footing that the income of the advanced fund was her income. On appeal, she admitted that apart from the 1960 Order the effect of the decision in Pilkington v. Commissioners of Inland Revenue40 T.C. 416; [1964] A.C. 612 was that the advanced fund was still held on the trusts of the 1932 settlement, the trusts of the 1952 settlement being void as regards that fund ; she contended, however, that it was implicit in the 1960 Order that the purported advance had been validly made, and that the doctrine of estoppel per rem judicatam barred a contention that the advanced fund was still held on the trusts of the 1932 settlement. The Special Commissioners held that the assessments were not defeated by any estoppel.
The Appellant in the second case was the life beneficiary of the other half of the fund established by the 1932 settlement as aforesaid. The
material facts were similar to those in the first case, and the contentions of the parties and the decision of the Commissioners were the sameIn the High Court it was further contended for the Appellants that they could not be liable to surtax on the income in question because it had not been paid to them.
Held, (1) that income from investments held on trust for a life tenant was for surtax purposes income of the life tenant as soon as it was received by the trustee, since it was forthwith under the life tenant's control ;
(2) that the Commissioners' decision was correct.
Spens v. Commissioners of Inland Revenue
CASE
Stated under the Income Tax Management Act 1964, s. 12(5), and the Income Tax Act 1952, s. 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 8th July 1968 Mrs. Eileen Patience Spens ("Mrs. Spens") appealed against the following assessments to surtax:
1955-56 |
(further) |
£1,032 |
1956-57 |
( " ) |
£1,500 |
1957-58 |
( " ) |
£1,058 |
1958-59 |
( " ) |
£1,089 |
1959-60 |
( " ) |
£1,146 |
2. At the same time we heard an appeal by Mrs. Olive M. Holdsworth Hunt ("Mrs. Holdsworth Hunt") in which the facts, the contentions of the parties and the question for our decision were in all material respects the same.
3. Shortly stated the question for our decision was whether, by reason of the invalidity of the advancement of funds from a settlement of 1932 to the trustees of a settlement of 1952, the said funds continued to be held on the trusts of the 1932 settlement and part of the income arising from the said funds in the years of assessment under appeal fell to be included in the computation of Mrs. Spen's total income for the purposes of Surtax.
4. The following documents were proved or admitted before us for the purpose of this appeal:
(2) A copy of a settlement made by Alfred Tyrer on 18th March 1932.
(3) A copy of a sub-settlement made by William Paul in favour of David Clunie Cunningham on 19th March 1952.
(4) A copy of a consent by Mrs. Spens to the advancement of funds from the settlement mentioned at (1) above to the trustees of the sub-settlement mentioned at (2) above.
(5) A copy of a memorandum endorsed on the sub-settlement mentioned at (2) above relating to the said advancement.
(6) A copy of an Order of the High Court dated 20th January 1960 approving arrangements varying the trusts affecting Mrs. Spens's Settled Share under the settlement mentioned at (1) above.
(7) A copy of the affidavit of Mrs. Spens dated 26th October 1959.
(8) A copy of the affidavit of P.H. Byam-Cook dated 21st October 1959.
(9) A copy of a deed of appointment executed by Mrs. Spens on 12th March 1965.
(10) Copies of correspondence.
Copies of such of the above as are not annexed hereto as exhibits are available for inspection by the Court if required.
5. The following facts were admitted between the parties:
(2) Mrs. Spens and Mrs. Holdsworth Hunt are grandchildren of Alfred Tyrer ("the settlor") and are children of the settlor's daughter Ida Paul. Mrs. Spens and Mrs. Holdsworth Hunt each has one child and no more. Mrs. Spens has a son David Clunie Cunningham ("David"), who was born on 5th July 1940, and Mrs. Holdsworth Hunt has a daughter Caroline Mary St. Clair Mills (née Ford) ("Caroline"), who was born on 24th February 1944.
(3) The settlor made a settlement ("the main settlement") on 18th March 1932, under which (in the events which happened) one half of Mrs. Paul's fund as defined therein ("Mrs. Spens's settled share") was held (i) on protective trusts for Mrs. Spens during her life; (ii) after her death on trust for her children or remoter issue as she should by will appoint, and (iii) in default of appointment, for her children who should attain 21 or marry under that age (with further trusts which cannot now take effect if there shall be no such child); and the other half of Mrs. Paul's fund ("Mrs. Holdsworth Hunt's settled share") was held on similar trusts for Mrs. Holdsworth Hunt and her children or remoter issue. The settlor died on 4th December 1946. A copy of the main settlement is annexed hereto, marked "A", and forms part of this Case(1).
(4) On 19th March 1952 William Paul (who was the father of Mrs. Spens and Mrs. Holdsworth Hunt) made two settlements ("the sub-settlements"), one in favour of David and one in favour of Caroline. The trusts of David's sub-settlement were shortly as follows: (i) on trust for David and all or any of his issue ("the discretionary class") as the trustees should within 21 years of the death of David ("the income period") appoint ; (ii) in default of and subject to any such appointment, to pay or apply during the income period income to or for any member of the discretionary class ; (iii) power to release or restrict the foregoing power of appointment ; (iv) from and after the expiration of the income period, in trust for the members of the discretionary class then in existence in equal shares, and (v) an ultimate trust back to the main settlement. The trusts of Caroline's subsettlement were similar. A copy of David's sub-settlement is annexed hereto, marked "B", and forms part of this Case(1).
(5) The money originally comprised in the sub-settlements was in each case £50, and was actually paid to the trustees of the sub-settlements, who were the same individuals as the trustees of the main settlement.
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(6) on 20th March 1952 the trustees of the main settlement, in purported exercise of the statutory power of advancement, and with the consent of Mrs. Spens and Mrs. Holdsworth Hunt respectively, transferred to the
trustees of each sub-settlement investments having a value of about £20,000 to be treated in all respects as part of the trust fund under the sub-settlement. This was recorded in a memorandum endorsed on each of the sub-settlements. A copy of the consent signed by Mrs. Spens and a copy of the memorandum endorsed on David's sub-settlement are annexed hereto, marked "C" and "D" respectively, and form part of this case(1) (7) Since 1952 the income of these two funds of £20,000 has been paid or applied by the trustees year by year to or for the benefit of David and Caroline. The question whether this should be treated as their income for tax purposes was raised with the relevant Inspectors of Taxes on or before 1st January 1953.
(8) On 20th January 1960 Orders were made by Cross J. approving arrangements varying the trusts affecting the respective settled shares (as defined in the arrangements) of Mrs. Spens and of Mrs. Holdsworth Hunt. The arrangements are set out in the schedules to the Orders. The respective settled shares of Mrs. Spens and of Mrs. Holdsworth Hunt are defined in each of the arrangements by reference to investments described in an appendix to each arrangement...
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