Stevenson v Wishart
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE FOX,LORD JUSTICE LLOYD,LORD JUSTICE STOCKER |
| Judgment Date | 15 April 1987 |
| Judgment citation (vLex) | [1987] EWCA Civ J0415-9 |
| Docket Number | 87/0373 |
| Court | Court of Appeal (Civil Division) |
| Date | 15 April 1987 |
[1987] EWCA Civ J0415-9
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE KNOX)
Royal Courts of Justice.
Lord Justice Fox
Lord Justice Lloyd
Lord Justice Stocker
87/0373
CH REV. 134/86
MR C. McCALL (instructed by the Solicitor, Inland Revenue) appeared on behalf of the Appellant.
MR D. MILNE (instructed by Messrs. Titmuss, Sainer & Webb) appeared on behalf of the Respondents.
This is an appeal by the Inland Revenue from a decision of Knox J., affirming a determination of a Special Commissioner. The question is whether certain sums of money, appointed and paid by trustees out of the capital of settled property, are income of the beneficiary for the purposes of income tax.
By Clause 4 of a Settlement (to which I will refer as "the Settlement") made on 28th June 1961 by Mr Joseph Levy, as settlor, certain property (which I will call "the Trust Fund") was settled upon such trusts:
"…for the benefit of Beneficiaries or any one or more of them exclusive of the other or others in such shares or proportions and subject to such terms limitations and provisions as the Trustees….. in their absolute discretion from time to time by deeds revocable or irrevocable executed during the Trust Period….. appoint".
There were trusts over in default of appointment. The trust period has not expired.
The Settlement defined "the Beneficiaries" as:
"(i) the children or remoter issue of the Settlor now living or born within the Trust Period….. and their respective wives and husbands and
(ii) any other person or persons and any charitable institutions, charitable objects and charitable trusts (not being the Settlor himself or any wife of the Settlor…..) that the Settlor before the expiration of 5 years from the date hereof may appoint by writing under his hand".
On 18th February 1966, the Settlor appointed that Mrs Kate Henwood, who was his mother-in-law, should be one of the Beneficiaries under the Settlement.
In June 1969, the Trustees resolved to advance the sum of £5,500 to Mrs Henwood out of the capital of the Trust Fund, and a Deed of Appointment ratifying this payment was executed on 31st October 1969.
In December 1977 Mrs Henwood, who was then over 90 years of age, had a heart attack. She had a further heart attack in March 1978.
On 31st March 1978 the Trustees resolved to appoint a further sum of £5,000 to Mrs Henwood out of the capital of the Trust Fund, such sum to be paid to the Settlor and applied by him to reimburse monies paid or to be paid by him on Mrs Henwood's behalf "for medical and other expenses". On the same date the Trustees executed an Appointment of the £5,000 absolutely. The Revenue raise no assessment in respect of the tax year 1977/78.
In May 1978 Mrs Henwood had to be removed to a nursing home. The arrangements with the nursing home and the nursing agency (for special nursing care) were made by the Settlor and his wife. These arrangements were that accounts were to be submitted in the name of Mrs Henwood but sent to the Secretary to the Trustees of the Settlement.
The Special Commissioner found as follows (in paragraph (5) of the Case Stated):
"At or about the time when Mrs Henwood entered the nursing home, a separate bank account was opened, designated 'S. Krendal J. Wishart A.R. Macmillan Trustees of J. Levy's 1961 Discretionary Settlement—Mrs Kate Henwood Account' ('the Mrs Henwood Account'). This bank account was used by the Trustees as a float out of which the cost of maintaining Mrs Henwood at the nursing home was met. Mr Holt was an authorised signatory of this account and paid all the bills from the nursing home, the nursing agency and the doctor out of it from May 1978 until August 1980. From time to time, Mr Holt notified the Trustees that the float was becoming exhausted, and the trustees transferred further sums to it".
During the tax year 1978/79, the Trustees transferred a total sum of £40,000 to the Mrs Henwood Account as follows:
| 10 May 1978 | £5,000 |
| 23 June 1978 | £5,000 |
| 26 July 1978 | £5,000 |
| 7 September 1978 | £5,000 |
| 20 October 1978 | £5,000 |
| 8 December 1978 | £5,000 |
| 15 January 1979 | £5,000 |
| 2 March 1979 | £5,000 |
In relation to this year of assessment, the Trustees passed three resolutions as follows:
(i) On 4th May 1978 they resolved to appoint that such a sum not exceeding £5,000 as might be required to meet "the cost of maintaining Mrs Henwood…. in a private Nursing Home until 31st July 1978, the cost of agency nurses as may be required, medical fees and all other expenses ancillary thereto" and that Mr Holt be authorised to approve and pay such bills;
(ii) On 7th July 1978 the Trustees resolved to appoint such further sum not exceeding £5,000 be appointed "as may be required to meet the cost of maintaining Mrs Henwood….. in a Private Nursing Home, the cost of any agency nurses….. medical fees and all other expenses ancillary thereto", and that Mr Holt be authorised to pay the bills;
(iii) On 10th August 1978 a similar resolution was passed by the Trustees in respect of a further sum of £10,000.
On 21st May 1979 the Trustees appointed to Mrs Henwood "the payments set out in the Schedule hereto". The Schedule then lists the eight sums which I have set out above and which were transferred to the Mrs Henwood account between 10th May 1978 and 2nd March 1979.
During the tax year 1979/80, the Trustees transferred a total of £50,000 to the Mrs Henwood account as follows:
| 1st May 1979 | £5,000 |
| 1st June 1979 | £5,000 |
| 4 July 1979 | £5,000 |
| 3 August 1979 | £5,000 |
| 13 September 1979 | £5,000 |
| 23 October 1979 | £5,000 |
| 21 November 1979 | £5,000 |
| 16 January 1980 | £5,000 |
| 13 February 1980 | £5,000 |
| 5 March 1980 | £5,000 |
In relation to this tax year the Trustees, on 4th December 1979, passed a resolution which recited that between the 1st May 1979 and 23rd October 1979 sums amounting to £30,000 (i.e. the first six in the list which I have set out above) were expended to meet the cost of maintaining Mrs Henwood in a Private Nursing Home, including the cost of special nurses, medical fees and other expenses ancillary thereto. The resolution then proceeded to record that the Trustees resolved to execute a Deed of Appointment in respect of that sum of £30,000.
On the same date (the 4th December 1979) the Trustees appointed the six sums of £5,000 to Mrs Henwood.
On 13th March 1980 the Trustees resolved to execute a further Deed of Appointment in respect of the remaining four sums of £5,000 in the 1979/1980 list. On the same date the Trustees executed an Appointment of the four sums to Mrs Henwood.
During the tax year 1980/81, the Trustees transferred a total of £19,250 to the Mrs Henwood account as follows:
| 14 April 1980 | £5,000 |
| 19 May 1980 | £6,500 |
| 27 June 1980 | £4,750 |
| 23 July 1980 | £3,000 |
No formal resolution by the Trustees was passed with regard to these payments, but on 12th September 1983 a Deed of Appointment was executed by the Trustees by which it was declared that the Trustees "hereby confirm the appointment to the said Kate Henwood" of those four sums.
We are not asked to determine any question as to the regularity of any of the payments as a matter of trust law. It is common ground between the parties that all the payments were validly made under Clause 4 of the Settlement, and were made out of the capital of the Trust Fund. It is also common ground, for the purposes of this appeal, that all the sums were actually applied in payment of medical and nursing fees of Mrs Henwood in the tax year in which they were paid out of the Trust Fund.
In August 1980 Mrs Henwood's flat (which was her own property) was sold and the proceeds were used to pay her nursing and medical expenses until her death on 8th January 1981. There were no payments out of the Trust Fund after July 1980. The Commissioner found that, before December 1977, Mrs Henwood's sole taxable income was her Old Age Pension, and her sole substantial asset was her flat.
The Revenue contend that all the sums paid by the Trustees (totalling £114,250) were income payments and have assessed the Trustees to tax in the following sums:
| 1978/79: | £15,271; |
| 1979/80: | £39,009 |
| 1980/81; | £16,978 |
The appeal raises two questions. First, whether the payments by the Trustees are to be treated as income receipts in the hands of Mrs Henwood for the purposes of the Income Tax Acts. Secondly, if the payments are to be so treated, whether the payments were made "to" Mrs Henwood within the meaning of Section 17(1) of the Finance Act 1973.
I come then to the first question. There is no doubt that payments of capital out of a trust may constitute income in the recipient's hands, despite their capital origin. Thus, in Brodie's Trustees v. C.I.R. 17 T.C. 432, the trustees of a Will held property upon trust to pay the income to the testator's widow for life with a provision that if, in any year, the income did not amount to £4,000, the trustees were to raise and pay to her out of capital such a sum as added to the income would make £4,000—"my intention being", the testator stated in the Will "that the income payable to my wife during her life shall in no...
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