J P Gilchrist (as trustee of the JP Gilchrist 1993 Settlement) v The Commissioners for HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judge | Mr Justice Richards,Judge Ghosh |
| Neutral Citation | [2014] UKUT 0169 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Subject Matter | Tax,11 April 2014 |
| Date | 11 April 2014 |
| Published date | 01 December 2016 |
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[2014] UKUT 0169 (TCC)
INHERITANCE TAX - discretionary settlement - 10-year charge – whether the proceeds of
sale of scrip dividend shares to which s.249 ICTA 1988 applies are deemed to be income not
only for the purposes of ICTA 1988 but also for the purposes of trust law generally and for
the purposes of Inheritance Tax
PRECEDENT – whether the Upper Tribunal is bound by a prior decision of the High Court
Appeal of taxpayer dismissed
IN THE UPPER TRIBUNAL FTC/89/2012
TAX AND CHANCERY CHAMBER
Mr J P GILCHRIST
(as trustee of the J P Gilchrist 1993 Settlement)
Appellant
-and-
THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS
Respondents
Tribunal: Mr Justice David Richards
Julian Ghosh QC
Sitting in public in London on 28 and 29 October 2013
Giles Goodfellow QC, counsel, instructed by DWF LLP, for the Appellant
David Yates, counsel, instructed by the Solicitor for HM Revenue and Customs, for the
Respondents
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Introduction
1. The parties submitted a helpful agreed document which sets out the procedural history,
the disputed issues and a statement of agreed facts, which we reproduce below at
paragraphs 2-22, subject only to some slight changes.
2. The Appellant, as trustee, appeals under section 222 of the Inheritance Tax Act 1984
(“IHTA 1984”) in relation to a Notice of Determination issued on 18 October 2011.
3. The effect of the Notice of Determination was to refuse a claim by the Appellant for
repayment of £177,474.41 of inheritance tax plus interest from November 2004, paid in
respect of a ten year charge to Inheritance Tax (“IHT”) by the trustees of a settlement of
which the Appellant is currently the trustee.
4. The Appellant appealed the Notice of Determination on 16 November 2011 and
immediately notified his appeal to the Tribunal under IHTA 1984, section 223D.
5. On 27 November 2012, Judge Bishopp transferred the appeal to the Upper Tribunal for
hearing and determination.
Outline of the Issues which are agreed and those in Dispute
6. The appeal concerns whether a 10 yearly charge under IHTA 1984, section 64 which
occurred on 17 May 2003 should have been calculated on the value of assets of the JP
Gilchrist 1993 Settlement (“the Settlement”) including assets which represented
directly or indirectly the proceeds of sales of 100,000 E ordinary shares issued by way
of scrip dividend (“the Scrip Dividend Shares”) to the trustees of the Settlement by a
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company then called Kepacourt Limited (“Kepacourt”), now called Paccar Parts UK
Limited. The part of the Trust Fund which directly or indirectly represented the Scrip
Dividend Shares as at the date of 10th year anniversary (17 May 2003) is referred to as
“the Scrip Dividend Proceeds”.
7. If the Scrip Dividend Proceeds were at the time of the ten yearly charge date income for
trust law purposes, it is agreed that their value should not have been included in
calculating the value of the “relevant property” for the purposes of IHTA 1984, section
64, since “relevant property” does not include money or property which is income for
trust law purposes, unless such income has been accumulated and added to capital prior
to the date of the chargeable event. It is common ground that neither the Scrip Dividend
Shares nor the Scrip Dividend Proceeds had been accumulated as at 17 May 2003. On
this basis, the amount of the ten-year IHT charge was overstated by £177,471 and the
appeal succeeds. However, if the Scrip Dividend Proceeds were capital for trust law
purposes, their value was properly included and the appeal fails.
8. The income or capital status of the Scrip Dividend Proceeds at the time of the ten yearly
charge in turn depends upon the effect of section 249 of the Income and Corporation
Taxes Act 1988 (“ICTA 1988”), on the issue of the Scrip Dividend Shares in April
1998. It is common ground that section 249(6) applied to the issue of the Scrip
Dividend Shares and that, for income tax purposes, income equal to the value of the
Scrip Dividend Shares was treated as arising to the Trustees of the Settlement.
9. There are two issues in dispute between the parties.
10. The first issue (the substantive issue) turns on whether ICTA 1988 section 249(6) also
had the effect of treating the Scrip Dividend Shares as income for trust law purposes;
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