The Trustees of the Morrison 2002 Maintenance Trust v The Commissioners for HM Revenue and Customs

JurisdictionEngland & Wales
JudgeLord Justice Newey,Lord Justice David Richards,Lord Justice McCombe
Judgment Date06 February 2019
Neutral Citation[2019] EWCA Civ 93
CourtCourt of Appeal (Civil Division)
Date06 February 2019
Docket NumberCase No: A3/2017/2886

[2019] EWCA Civ 93

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE UPPER TRIBUNAL

(TAX AND CHANCERY CHAMBER)

Mr Justice Arnold and Judge Roger Berner

[2017] UKUT 0300 (TCC)

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice McCombe

Lord Justice David Richards

and

Lord Justice Newey

Case No: A3/2017/2886

Between:
(1) The Trustees of the Morrison 2002 Maintenance Trust
(2) The Trustees of Sir Fraser Morrison's 1989 Trust
(3) The Trustees of Sir Fraser Morrison's 1995 Trust
(4) Sir Fraser Morrison
Appellants
and
The Commissioners for her Majesty's Revenue and Customs
Respondents

Mr Kevin Prosser QC and Mr Charles Bradley (instructed by Dentons UK and Middle East LLP) for the Appellants

Mr Akash Nawbatt QC and Miss Kate Balmer (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Respondents

Hearing dates: 15 and 16 January 2019

Approved Judgment

Lord Justice Newey
1

This appeal concerns the effectiveness of some tax planning that was designed to avoid the capital gains tax (“CGT”) that would otherwise have arisen on the disposal of certain shares. The First-tier Tribunal (“the FTT”) (Judge J Gordon Reid QC and Mr Ian Malcolm) concluded that the approach first introduced by WT Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300 applied and, hence, that CGT had not been avoided, and the Upper Tribunal (“the UT”) (Arnold J and Judge Roger Berner) agreed. The appellants, however, challenge those decisions.

The facts

2

This section of this judgment is based on a statement of facts that was agreed between the parties and on findings made by the FTT.

3

The first to third appellants (“the Scottish Trustees”) are the trustees of three trusts (“the Scottish Trusts”) that the fourth appellant, Sir Fraser Morrison, established for the benefit of his family between 1989 and 2002. The Scottish Trustees have always been resident in the United Kingdom and have since 8 November 2004 comprised Lady Morrison (Sir Fraser Morrison's wife) and trustee companies managed by the solicitors Maclay Murray & Spens LLP (“MMS”).

4

Immediately before the events giving rise to this appeal, the Scottish Trustees held some 2% of the issued capital of AWG plc (“AWG”), a listed company.

5

The Scottish Trustees wished to diversify and, to that end, to dispose of AWG shares, but they were concerned that doing so would give rise to substantial CGT liabilities. MMS were asked to advise and, following a consultation with counsel, a scheme involving the following steps was devised:

i) The establishment of trusts with Irish-resident trustees and terms similar to those of the Scottish Trusts;

ii) The grant by the Irish trustees to the Scottish Trustees of put options for the sale of the AWG shares at a price equal to the Scottish Trustees' CGT base cost plus indexation (if any);

iii) The exercise of those options by the Scottish Trustees and, as a result, the acquisition of the AWG shares by the Irish trustees;

iv) The sale of the AWG shares by the Irish trustees; and

v) The replacement of the Irish trustees by trustees resident in the United Kingdom before the end of the tax year.

6

In pursuance of this scheme, trusts mirroring the Scottish Trusts but with Irish-resident trustees (“the Irish Trusts” and “the Irish Trustees”) were established on 10 November 2004, with Lady Morrison as their settlor. The Irish Trusts were created as a vehicle to carry out the scheme to enable CGT to be avoided on the sale of the AWG shares and had no independent commercial purpose. Their trustees were a trust company managed by Matheson Ormsby Prentice (now simply “Matheson”), a Dublin law firm, and that firm's finance director. Although the Scottish Trustees had no formal control over the Irish Trustees, it was unrealistic to assume that the latter would do anything that significantly contradicted the views of the former and the beneficiaries that the trust assets should be diversified by selling the AWG shares.

7

On Friday 19 November 2004, the Irish Trustees entered into agreements granting the Scottish Trustees put options in respect of the AWG shares at prices equivalent to their base cost for CGT purposes. The previous day, MMS had written to the Irish Trustees on the Scottish Trustees' behalf asking for the options to be granted.

8

The options were exercisable only if a “Relevant Event” (which related to the exchange rate between the US dollar and sterling) occurred. The introduction of the “Relevant Event” was an anti- Ramsay device. There was a 10% chance of the “Relevant Event” not occurring.

9

On Monday 22 November 2004, the Irish Trustees resolved to appoint Merrill Lynch to provide investment advice subject to a suitable letter of engagement being agreed.

10

A briefing paper presented at a meeting of the Scottish Trustees on 23 November 2004 identified the following as uncertainties:

i) The possibility of a change in the law affecting section 144ZA of the Taxation of Chargeable Gains Act 1992 (“the TCGA”);

ii) The possibility of a change in Irish tax law;

iii) The decision of the House of Lords in IRC v Scottish Provident Institution, which was due to be handed down on 25 November;

iv) The possibility of a change in the AWG share price making immediate sale in the market more attractive than exercising the put options and transferring the shares into the Irish Trusts; and

v) The Scottish Trustees considering that exercise of the options was not in the best interests of the beneficiaries or outwith their powers as trustees.

11

With regard to the fourth of these points, the FTT noted that “a catastrophic collapse of the AWG share price would have been required” (paragraph 104 of its decision) and that “there was no evidence that there was a real risk of such a dramatic fall in the market share price (paragraph 62). As for point (v), the Scottish Trustees considered that transfer of the AWG shares at an undervalue could represent a breach of trust on their part, but their concerns were allayed by the provision on 23 and 24 November 2004 of indemnities from beneficiaries and a waiver from Sir Fraser Morrison.

12

The “Relevant Event” having occurred on 23 November 2004, on Thursday 25 November the Scottish Trustees exercised the put options in respect of the AWG shares. They received a little less than £4.5 million from the transactions.

13

At this stage, “there was no practical likelihood that the AWG shares would not forthwith be re-sold in the market by the Irish Trustees” (paragraph 111 of the FTT decision). While the FTT accepted that the Irish Trustees “genuinely considered matters carefully over a short period”, “the possibility of the Irish Trustees acting contrary to the clear wishes of the beneficiaries and the Scottish Trustees was remote”: the reality was that “there was no practical likelihood of the Irish Trustees faltering and reaching a different view” (paragraph 109 of the FTT decision). The FTT concluded (in paragraph 111) that:

“as at 25 November 2004, when the Scottish Trustees exercised the options, if not before, there was every practical likelihood that the AWG shares would forthwith be re-sold in the market.”

14

In the event, on Wednesday 1 December 2004 the Irish Trustees sold the AWG shares to Merrill Lynch, which was acting as a principal rather than an agent, under a “risk bid” arrangement. Merrill Lynch, in turn, sold to the market. The Irish Trustees thereby achieved the certainty of a minimum price (£7.40) for the shares, Merrill Lynch underwriting the sale at a particular value with the possibility of a higher price being obtained depending on a subsequent sale by it to the market. In the end, the Irish Trustees received £7.43 a share and, hence, about £14.3 million for their holding.

15

On 11 March 2005, the Irish Trustees retired as trustees of the Irish Trusts in favour of Lady Morrison and the two trustee companies which were already trustees of the Scottish Trusts. The Scottish Trustees thus became the trustees of the Irish Trusts as well. But for the appointment of UK-resident trustees of the Irish Trusts, their settlor (Lady Morrison) and beneficiaries could have been exposed to CGT liabilities.

16

The FTT commented (at paragraph 30.31 of its decision):

“The tax planning scheme or arrangement was carried out almost exactly as planned. The only variation was minor, namely the AWG shares were sold first to Merrill Lynch and then in the market.”

17

HM Revenue and Customs (“HMRC”) assessed the Scottish Trustees to CGT on the basis that they were to be treated as having disposed of the AWG shares to Merrill Lynch.

The legislative framework

18

Section 1(1) of the TCGA provides for CGT to be charged:

“in respect of capital gains, that is to say chargeable gains computed in accordance with this Act and accruing to a person on the disposal of assets”.

By section 15, “[e]very gain shall, except as otherwise expressly provided, be a chargeable gain”.

19

Under section 17 of the TCGA, disposals and acquisitions of assets are to be treated as made at market value in certain circumstances. Section 17(1) states:

“(1) Subject to the provisions of this Act, a person's acquisition or disposal of an asset shall for the purposes of this Act be deemed to be for a consideration equal to the market value of the asset—

(a) where he acquires or, as the case may be, disposes of the asset otherwise than by way of a bargain made at arm's length, and in particular where he acquires or disposes of it by way of gift or on a transfer into settlement by a settlor or by way of distribution from a company in respect of shares in the company, or

(b) where he acquires or, as the case may be, disposes of the asset wholly or partly for a consideration that cannot be valued, or in connection with his own or another's loss of office or employment or diminution of emoluments,...

To continue reading

Request your trial
1 cases
  • Odey Asset Management LLP and Others
    • United Kingdom
    • First Tier Tribunal (Tax Chamber)
    • 4 February 2021
    ...for those steps to be viewed as a preordained series of transactions (see Trustees of the Morrison 2002 Maintenance Trust v R & C Commrs [2019] BTC 3 (at [53])). In this case, the allocation of the deferred share to PSCL, contribution of the deferred share by PSCL to Odey as Special Capital......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT