The Right Honourable Joyce Elizabeth and Others v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NOURSE,LORD JUSTICE STAUGHTON,SIR CHRISTOPHER SLADE |
| Judgment Date | 19 February 1992 |
| Judgment citation (vLex) | [1992] EWCA Civ J0219-10 |
| Date | 19 February 1992 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 92/0165 |
[1992] EWCA Civ J0219-10
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (REVENUE)
(MR JUSTICE VINELOTT)
Royal Courts of Justice
Lord Justice Nourse
Lord Justice Staughton
Sir Christopher Slade
92/0165
MR ROBERT REID, Q.C., and MR CHRISTOPHER McCALL, Q.C., instructed by the Solicitor of Inland Revenue, appeared for the Commissioners of Inland Revenue.
MR ROBERT WALKER, Q.C., and MR MARK HERBERT, instructed by Messrs Currey & Co., appeared for the Respondents.
In 1986 the Commissioners of Inland Revenue, by an application of the Ramsay principle (see W.T. Ramsay Ltd v. I.R.C. [1982] A.C. 300 and later authorities), determined that capital transfer tax ("CTT") was payable by virtue of a series of transactions affecting the estate of the tenth and last Earl Fitzwilliam, who died as long ago as 1979. The determination, having been upheld by the Special Commissioners, was quashed by Mr Justice Vinelott, against whose decision the Crown has appealed to this court. The taxpayers now accept that the Ramsay principle is capable of applying to a scheme for the avoidance of CTT. Broadly stated, they argue that the individual transactions were not preordained and did not make up a single composite transaction; further or alternatively, that even as a composite transaction they did not produce the fiscal results for which the Crown contends. The Crown maintains an alternative claim, not based on the Ramsay principle, which was also rejected by the learned judge.
Towards the end of his judgment [1990] STC 65, 120F, Mr Justice Vinelott said:
"It is important that when the Revenue invoke the Ramsay principle they should make it clear what fiscal consequences they attach to what is said to be a single composite transaction and under which provision of the taxing statutes a charge to tax arises or a claim for exemption or relief fails. This is of particular importance in the field of capital transfer tax."
Later he said that he did not think that the Crown had been able to explain precisely how the individual transactions, treated as a single composite transaction, gave rise to a charge to CTT. With these observations, which go to the taxpayers' alternative argument, I wholly agree. Because the judge had already concluded that the individual transactions could not properly be treated as a single composite transaction he did not have to explore the matter further. But because it has assumed a greater importance in the argument in this court it must be mentioned at the outset.
The judge's difficulties in understanding the basis of the fiscal results for which the Crown contends must have been caused in large part by shortcomings in the notices of determination. In the course of argument we invited counsel for the Crown to submit an amended notice of determination precisely formulating its claims. An amended version was accordingly produced. It has to my mind clarified both the essentials of the Crown's claims and its inability to sustain them. The outcome of the appeals must be decided by reference to the amended version and none other.
The facts as admitted or found by the Commissioners are set out in their decision, which, with the judgment of Mr Justice Vinelott, is fully reported at [1990] STC 65. That enables me to state them more briefly.
The Tenth Earl did not have issue. By clauses 7 to 11 of his will dated 13th December 1977 he directed his trustees, who included his widow Joyce Elizabeth Mary Countess Fitzwilliam and her daughter Elizabeth-Anne Marie Gabrielle (now Lady Hastings), to hold his net residuary estate upon trusts and subject to powers and provisions which, so far as material, can be summarised as follows. During a period which could not exceed 23 months after the Tenth Earl's death, the trustees had power to appoint capital or income in favour of a class of beneficiaries which included Lady Fitzwilliam, Lady Hastings and her son, Mr Philip Naylor-Leyland. Subject to that power, the trustees had a further power during the same period to accumulate income, subject to which there was a discretionary trust to distribute income amongst the beneficiaries. The foregoing powers were expressed to be exercisable notwithstanding that the administration of the estate might be incomplete or that probate might not have been granted. At the end of the 23 month period and subject to any exercise of the power of appointment, the trustees were directed to pay the income to Lady Fitzwilliam during her life, with power for them (other than Lady Fitzwilliam herself) to pay her capital at their discretion, and with an ultimate trust in favour of Lady Hastings absolutely contingently on her surviving the Tenth Earl by one month.
The Tenth Earl died on 23rd September 1979 at the age of 75. Lady Fitzwilliam and Lady Hastings were then aged 81 and 45 respectively. The will was proved on 30th November 1979 by the executors named therein other than Lady Fitzwilliam, who did not, however, renounce her office as a trustee. The net value of the estate was certified at just under £11.6m, later corrected to just over £12.4m.
The seemingly eccentric form of the initial dispositions of the residuary estate was explained by Mr Justice Vinelott [1990] STC, 94D:
"The purpose of interposing the discretionary trust before Lady Fitzwilliam's life interest was to take advantage of section 47 (1A) of the Finance Act 1975 (introduced by section 121 (1) of the Finance Act 1976) which provides that where within two years after a death and before any interest in possession comes into existence an event occurs on which [CTT] would otherwise be chargeable in respect of the estate of a deceased person tax is not to be charged on that event but that tax is to be chargeable as if the will or intestacy had provided for the estate to be held as it was after that event. Taken in conjunction with the surviving spouse exemption in Sch. 6 to the Finance Act 1975 this had the practical effect that if the power of appointment were exercised in such a way as to give Lady Fitzwilliam an interest in possession in part of the estate that part would escape CTT both on the exercise of the power and on the Tenth Earl's death. Similarly, if Lady Fitzwilliam survived the 23-month period any part of the residuary estate in which she then took an interest in possession would escape duty both on the Tenth Earl's death and by reference to the termination of the discretionary trust and the arising of her life interest."
Thus the interposition of the discretionary trust gave the trustees an opportunity of reviewing the position at the Tenth Earl's death. If Lady Fitzwilliam's health had then been good, no doubt they would have appointed her a life interest, at any rate in a substantial part of the residuary estate, thus postponing a charge to CTT on the appointed assets until her death. As it happened, the Tenth Earl's death was quite unexpected. Combined with the death of her only sister just two weeks later, it caused considerable distress to Lady Fitzwilliam. As the Commissioners found, [1990] STC 70J:
"Although normally in reasonable health Lady Fitzwilliam had been dealt a severe blow by the loss of both her husband and her sister in quick succession and the possibility of her early demise had to be faced."
The dilemma which confronted the trustees was described by Mr Justice Vinelott at p.95D:
"If the trustees did nothing and if she died within the 23-month period the whole of the residuary estate would attract CTT on the Tenth Earl's death at the full rate of 75 per cent. If an appointment was made giving Lady Fitzwilliam an interest in possession duty on the Tenth Earl's death would be saved but duty would be payable on her death, and so steep was the gradation of the charge at that time that the average rate of duty would not be significantly less than 75 percent."
The trustees therefore instructed their solicitors, Currey & Co., to explore as a matter of some urgency all possible ways of avoiding the prospective liability to CTT.
In support of their primary argument, the taxpayers claim that between 11th October 1979 and 30th January 1980 no fewer than seven successive schemes for the avoidance of CTT were produced under the advice of Currey & Co. and the counsel whom they instructed. For reasons which will appear in due course, it is unnecessary to investigate the merits of that particular claim. It is enough to say that between those dates solicitors and counsel deliberately strove to produce and perfect a scheme which would have the desired effect. The Commissioners found (see below) that the details of the plans were intentionally not disclosed to the members of the family. They clearly thought that that was a significant feature of the case. Although the point was not investigated in argument, it has since occurred to me that the legal advisers may have been seeking to avoid the application of the "associated operations" provisions of the CTT legislation;...
To continue reading
Request your trial