Stevenson v Wishart
| Jurisdiction | England & Wales |
| Judgment Date | 16 December 1986 |
| Date | 16 December 1986 |
| Court | Chancery Division |
Chancery Division.
Mr. C.H. McCall (instructed by the Solicitor of Inland Revenue) for the Crown.
Mr. D.C. Milne (instructed by Messrs. Titmuss, Sainer & Webb) for the taxpayers.
Before: Knox J.
The following cases were referred to in the judgment:
Berrill v. I.R. Commrs. WLR[1981] 1 W.L.R. 1449
Brodie's Will Trustees v. I.R. Commrs. TAX(1933) 17 T.C. 432
Cunard's Trustees v. I.R. Commrs. TAX(1945) 27 T.C. 122
Jackson's Trustees v. I.R. Commrs. TAX(1942) 25 T.C. 13
Lindus & Hortin v. I.R. Commrs. TAX(1933) 17 T.C. 442
Milne's Executors v. I.R. Commrs. TAX(1956) 37 T.C. 10
Muir v. Muir ELR[1943] A.C. 468
Income tax - Trustees - Additional rate tax - Settlement on discretionary trusts - Payments for maintenance of beneficiary out of trust capital - Whether payments represented taxable income of beneficiary - Finance Act 1973 section 17Finance Act 1973, sec. 17.
This was an appeal by the Crown by way of Case Stated dated 16 October 1984 from a decision of a single Special Commissioner whereby he reduced to nil assessments made on the trustees of the Joseph Levy 1961 Discretionary Settlement.
During 1977 H, then one of the beneficiaries of a discretionary settlement, suffered a heart attack. In 1978, aged over 90 years, she entered a private nursing home where she remained until her death in 1981. Between 1978 and 1981 22 sums of money, totalling £114,250, were resolved from time to time to be appointed by deed by the settlement trustees out of the capital of the trust fund. All payments were applied in meeting the nursing and medical expenses of H and at no time did H herself have any control over the money. The trustees appealed against assessments to income tax at the additional rate made on them in respect of those payments under Finance Act 1973 section 17 subsec-or-para (2)sec. 17(2)(b) of the Finance Act 1973 for 1978-79 of £15,271, for 1979-80 of £39,009 and for 1980-81 of £16,978. They appealed against the assessments to a single Special Commissioner who upheld their contention that they were not assessable under that provision in respect of any of the payments as they were not to be treated as income in the hands of H. The assessments were reduced to nil.
The Crown appealed against that finding and the court was asked to decide whether the payments were to be regarded as income and if so whether the payments fell within Finance Act 1973 section 17 subsec-or-para (1)sec. 17(1) as if made to H even though they were never physically paid to her. The Crown contended that the payments were all made for an income purpose, namely that of maintaining H in her old age and that for the purposes of the statutory provisions they constituted taxable income in her hands. It was further contended that for tax purposes the payments were to be treated as having been made to H notwithstanding that they were never physically paid to her but were applied for her benefit by meeting her nursing fees.
For the trustees it was argued that the cases did not establish that all applications of money for maintenance and support necessarily constituted income of the person being maintained and supported. The case was to be distinguished from those where there had been a direction or a discretion to supplement an income entitlement of a beneficiary or to create an annuity. Here there was no intention to create an income interest in H but merely an intention to make short term provision for the exceptional expenses of dying. Further it was the trustees' case that the sums in question were not paid "to" H within the meaning ofFinance Act 1973 section 17 subsec-or-para (1)sec. 17(1) of the Act: when the Income Tax Acts were intended to apply to payments made "to or for the benefit of" a person they invariably said so and that they had not here done.
Held, dismissing the Crown's appeal:
1. Payments made in the exercise of a power of appointment over capital for the benefit of the beneficiary were of a capital nature. The line to be drawn was between transactions which created an entitlement to income in the recipient's hands and those which did not. The fact that the beneficiary was also an object of the discretionary trust over income was irrelevant.
2. In the light of that conclusion, it was unnecessary to deal with the issue of whether the sums were paid to H under Finance Act 1973 section 17 subsec-or-para (1)sec. 17(1).
1. On 12 and 13 April 1984 I, one of the Commissioners for the special purposes of the Income Tax Acts, heard appeals by James Walkinshaw Wishart, Silas Krendel and Arthur Ross Macmillan, the Trustees of Mr. Joseph Levy's 1961 Settlement (hereinafter called "the Trustees"), against the following assessments made upon them under theFinance Act 1973 section 17 subsec-or-para (2)Finance Act 1973, sec. 17(2)(b):
1978/79-£15,271
1979/80-£39,009
1980/81-£16,978
2. The evidence consists of an agreed statement of facts supported by a bundle of agreed copy documents numbered 1 to 18 as set out in the Schedule to the bundle. Copies of these documents are available for inspection by the court if required.
3. The question for my determination, the facts, the contentions of the parties and my conclusion appear from my decision in principle which I delivered in writing on 6 June 1984.
4. I was referred to Lord Michelham's Trustees v. I.R. Commrs.(1930) 15 T.C. 737 in addition to the cases referred to in my decision.
5. The parties agreed that in the light of my decision all the assessments should be reduced to nil. I formally determined the assessments accordingly on 10 July 1984.
6. The appellant immediately after the determination of the appeal declared his dissatisfaction therewith as being erroneous in point of law and on 30 July 1984 required me to state a case for the opinion of the High Court pursuant to the Taxes Management Act 1970 section 56Taxes Management Act 1970, sec. 56which case I have stated and do sign accordingly.
7. The question for the opinion of the court is whether my decision was erroneous in point of law.
1. Mr. J.W. Wishart, Mr. S. Krendel and Mr. A.R. Macmillan ("the Trustees") appeal against assessments made upon them as trustees of the Joseph Levy 1961 Discretionary Settlement under the Finance Act 1973 section 17 subsec-or-para (2)Finance Act 1973, sec. 17(2)(b) for the years 1978/79, 1979/80 and 1980/ 81. The question in issue is whether sums appointed from time to time by the Trustees out of the capital of the Trust Fund, which sums were expended to discharge the cost of maintaining at a nursing home one of the objects of the discretionary trust, constituted income of that person for all the purposes of the Income Tax Acts which was paid "to" that person within the meaning of the Finance Act 1973 section 17 subsec-or-para (1)Finance Act 1973, sec. 17(1).
2. The evidence consists of an agreed statement of facts supported by a bundle of agreed copy documents.
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(2) On 28 June 1961 Mr. Joseph Levy ("the Settlor") made a settlement ("the Settlement").
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(3) The Settlement is in discretionary form. Amongst its provisions:
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(i) Clause 2(c)(ii) provides for "the Beneficiaries" to include:
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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 or any Trustee hereof for the time being) that the Settlor before the expiration of five years from the date hereof may appoint by writing under his hand.
(ii) Clause 4 gives the Trustees an overriding power of appointment over capital and income.
(iii) Clause 5 provides that, in default of and subject to any such appointment, the Trustees are to distribute the whole of the income of the Trust Fund amongst the Beneficiaries.
(iv) Clauses 4 and 5 read as follows:
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4 THE Trustees shall stand possessed of the Trust Fund and the income thereof upon such Trusts for the benefit of the Beneficiaries or any one or more of them exclusive of the other or others in such shares and proportions and subject to such terms limitations and provisions as the Trustees being at least two in number shall with the consent of the Settlor during his life and thereafter in their absolute discretion from time to time by Deed or Deeds revocable or irrevocable executed during the Trust Period but without infringing the rule against perpetuities appoint PROVIDED ALWAYS that the Trustees shall not without the consent of the Settlor during his life and shall not without the consent of the widow of the Settlor after his death exercise this power in such a way as to distribute or enable the distribution absolutely during the Trust Period to the Beneficiaries or any one or more of them of sums in any year totalling in value more than one tenth of the Trust Fund or the sum of Fifty thousand pounds whichever shall be the lesser.
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5 IN default of and subject to any such appointment as aforesaid the Trustees shall during the Trust Period pay or apply the whole of the income of the Trust Fund as it arises to or for the benefit of all or such one or more exclusive of the others or other of the Beneficiaries in such proportions and manner and subject to such terms limitations and provisions as the Trustees shall in their absolute and uncontrolled discretion think fit PROVIDED ALWAYS that the Trustees may during the period of two years from the date of execution hereof instead of paying or applying the whole or any part of such income as aforesaid accumulate the same by investing in any of the investments hereinafter authorised and holding the same as part of the capital of the trust for all purposes.
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(4) Of the trustees named in the Settlement Mr. Howard John Phillips retired on 1 December 1965. The other trustees continue in office, and no new trustee has been appointed.
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(5) The power conferred upon the Settlor by cl. 2(c)(ii) of the Settlement was...
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Stevenson v Wishart
...17 T.C. 442 Milne's Executors v. I.R. Commrs. TAX(1956) 37 T.C. 10 This was an appeal by the Crown against the decision of Knox J.[1986] BTC 58 that recurrent payments made by trustees in exercise of a power to appoint capital, for the purpose of maintaining an aged beneficiary in a nursing......