Trustees of the Raymond Taube Discretionary Settlement Trust v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 07 October 2010 |
| Neutral Citation | [2010] UKFTT 473 (TC) |
| Date | 07 October 2010 |
| Court | First Tier Tribunal (Tax Chamber) |
[2010] UKFTT 473 (TC)
Judge Roger Berner (Chairman), Mrs Lesley Stalker CTA (Member)
Alun James, instructed by BDO Stoy Hayward LLP, for the Appellants
David Ewart QC and David Yates, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
Income tax - trusts receiving special dividends - trust capital or trust income? - discovery assessment on life tenant - TMA, Taxes Management Act 1970 section 29s. 29 - whether a "discovery" - whether trust tax return was information made available - Taxes Management Act 1970 section 29 subsec-or-para 5 section 29 subsec-or-para 6ss. 29(5), (6) - whether negligent conduct of adviser within Taxes Management Act 1970 section 29 subsec-or-para 4s. 29(4)
1. This case concerns the Appellants' appeals against the following:
(2) As regards the Trustees of the Bessie Taube 1991 Discretionary Settlement ("the Bessie Taube Trust"), the amendment dated 29 September 2004 by HMRC to the Trust and Estate tax return for 2000/01;
(3) As regards the Trustees of the Raymond Taube 1991 Discretionary Settlement ("the Raymond Taube Trust"), the amendment dated 29 September 2004 by HMRC to the Trust and Estate tax return for 2000/01; and
(4) As regards Raymond Taube ("Mr Taube"), a notice of assessment dated 6 December 2004.
2. In the case of the appeal by the Bessie Taube Trust, it had been agreed by the parties that, irrespective of the outcome of the substantive issue, no tax would arise in any event. This is because, even if, as HMRC claim, the dividend received by the Bessie Taube Trust is trust income, that income would be taxable, under Income and Corporation Taxes Act 1988 section 1As. 1A of the Income and Corporation Taxes Act 1988 ("TA"), as applicable at the relevant time, at the Schedule F ordinary rate of 10%, and that liability would be entirely franked or offset by the tax credit attaching to the dividend. There had been no withdrawal of HMRC's case in this respect, and so it was accepted by the parties that the proper course was for the Tribunal to allow that appeal. We therefore allow the appeal by the Bessie Taube Trust, and reduce the amendment to the trustees' self-assessment to nil.
3. The remainder of this decision accordingly relates to the appeals by the Raymond Taube Trust and by Mr Taube himself. It appeared during the hearing that there was an issue on the figures in respect of both the amendment to the self-assessment of the Raymond Taube Trust and the assessment on Mr Taube. However, those issues were resolved and agreed between the parties. We are accordingly required only to determine the substantive issues of principle, and then, on the basis of that determination, to decide upon the appropriate reductions or increases, as the case may be, to the amended self-assessment of the trustees and/or the assessment on Mr Taube.
4. In essence, the dispute concerns the tax treatment of a special dividend received by each of the Bessie Taube Trust and the Raymond Taube Trust from a family company, Michael Taube Limited ("the Company"), following a reorganisation of its share capital. The Bessie Taube Trust received a dividend of 777,600, which if it is trust income and not trust capital will belong to Mr Taube as the person with an interest in possession in that trust, and be taxable on him accordingly. The Raymond Taube Trust received a dividend of 240,000, which if it is trust income and not capital will be subject to tax at the then applicable Schedule F trust rate of 25%, which at the relevant time applied to accumulation and discretionary trusts, subject to the tax credit on the dividend (Income and Corporation Taxes Act 1988 section 686s. 686 TA).
5. The Appellants were represented by Alun James. David Ewart QC and David Yates appeared for HMRC.
6. We had a statement of agreed facts, which we reproduce below (subject to some minor alterations of our own in square brackets), and two witness statements from Mr Michael Dawson, who is a chartered accountant and tax adviser and currently a partner in BDO LLP in Manchester and who was, at the time as a member of Cooper Lancaster Brewers, instructed in connection with the transaction in question in this appeal. Mr Dawson gave oral evidence and was cross-examined by Mr Ewart. In addition we had an agreed bundle of documents and received a number of supplementary documents during the course of the hearing.
(2) On 20 April 2000 the trustees of the Bessie Taube Settlement exercised their discretion to appoint an interest in possession to Mr Raymond Taube, the son of the settlor.
(3) On 25 April 2000, Michael Taube Limited passed a resolution which reclassified the shares [owned] by the trustees of the Bessie Taube Settlement and also the Raymond Taube Settlement into A ordinary shares.
(4) On 26 April 2000, the trustees were paid a dividend of 2,400 per "A" share which equates to the entire value of the "A" shares and, having taken professional advice, treated the receipt as trust capital.
(5) On 15 January 2002, Mr Raymond Taube signed his personal return for the year ended 5 April 2001, which was submitted prior to 31 January 2002. At box 23.6 of the tax return the additional information disclosed contained the agent's name and address (Crawfords) as well as
UK DIVIDENDS - (Southern Land Securities Ltd)
General notes:
No dividend paid by Southern Land in 2000/2001.
(6) At box 7.32 the additional information disclosed is:
UK Trusts:
Bessie Taube Life Int Settlement.
(7) At box 8.22 the additional information disclosed is:
Shares gifted to Raymond Taube on 10.04.2000 from his wife, Mrs Ruth Taube. Shares sold to Raymond Taube Discretionary Settlement on 20.04.2000 using quarter-up method.
(8) On 25 January 2002 the trust return for the Bessie Taube 1991 Discretionary Settlement for the year ended 5 April 2001 was signed by Mr Raymond Taube in his capacity as trustee. This was submitted to the Inland Revenue prior to the due date of 31 January 2002.
(9) The trust tax return made the following disclosure in the additional information box:
1. The trustees appointed an interest in possession to Mr Raymond Taube on 20 April 2000. No income was received in the trust in the period from 5 April 2000 to 20 April 2000.
Following a share reorganisation, the trustees received a special dividend of 777,600, equivalent to the current value of their shareholding in Michael Taube Limited on 26 April 2000. Having taking professional advice, the trustees regard the receipt as trust capital which is not available for distribution.
(10) The tax return for another family settlement, the Raymond Taube 1991 Discretionary Settlement, was also submitted to the Revenue prior to 31 January 2002. This return made a disclosure in the additional information box as follows:
1. Following a share reorganisation, the trustees received a special dividend of 240,000, equivalent to the current value of their shareholding in Michael Taube Limited on 26 April 2000. Having received professional advice, the trustees regard the receipt as trust capital, which is not available for distribution.
2. Quoted shares were purchased from the settlor at their open market value (quarter up basis) amounting to 237,268 in April 2000. Full details of the disposals are reported on Mr Taube's tax return.
The Trust made a capital gain on disposal of quoted shares during the year of 520 (proceeds "2,127)"
(11) On 4 July 2002, the Revenue opened an enquiry into the Raymond Taube 1991 Discretionary Settlement. The taxpayer's agents, Crawfords, responded on 24 July 2002 to confirm that the trustees had received a cash distribution and that the trustees had received advice that it should be treated as trust capital.
(12) By letters issued on 6 December 2002, the Revenue opened an enquiry into the Bessie Taube 1991 Settlement. This letter asked for further information including:
Copies of the statements relating to the account represented by interest at box 9.2.
Copies of statements for the accounts represented by box 9.12.
Copies of the trust Deed.
A request to see the professional advice, referred to in the disclosure.
Exact circumstances of the receipt of [777,600].
(13) On 31 January 2003, the enquiry window for the 2000/01 tax returns both for the trustees and for Mr Raymond Taube personally expired.
(14) On 7 February 2003 the Revenue sent a reminder letter requesting a response to their letter of 6 December 2002 requesting additional information.
(15) On 30 April 2003 the Revenue issued a formal notice requiring documents and other information.
(16) On 19 May 2003 Crawfords responded to the information request of 6 December 2002. Crawfords responded to [the] initial information request, and confirmed that the dividend was not a company buyback of shares. Their letter enclosed:
A copy of the 23 April 1991 Deed and Deed of Appointment of 20 April 2000.
Advice letter dated 20 April 2000 from Pannone & Partners.
Michael Taube Limited's resolutions in relation to the special dividend passed on 25 April 2000 and the Company's Articles of Association.
(17) On 3 June 2003 the Revenue acknowledged receipt and replied to [the] letter dated 19 May 2003.
(18) On 25 November 2003 Numerica sent a letter to the Revenue disagreeing with the Revenue's arguments in their letter dated 21 October 2003.
(19) On 22 April 2004 Numerica responded to the Revenue's letter dated 31 March 2004 advising the Revenue that [the] letter dated 25 November 2003 headed Bessie Taube 1991 Discretionary Settlement was intended to apply equally to the Raymond Taube 1991 Settlement.
(20) On 2 June 2004 Numerica responded regarding the Bessie Taube 1991 Discretionary Settlement and put forward arguments.
(21) On 8 June 2004 the Revenue acknowledged receipt of Numerica's contentions.
(22) On or around the 16 September 2004, the trust cases were transferred from...
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