Vestey's Executors v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Date | 1946 |
| Year | 1946 |
| Court | House of Lords |
NO. 1422-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Income Tax - Sur-tax - Avoidance of liability to tax - Transfer of assets to persons abroad - Settlement - Demise of properties situate abroad - Rent payable to trustees abroad and accumulated for benefit of lessors' issue - Trustees empowered to lend without security - "Power to enjoy income" - Power to revoke or determine the settlement - "Interest in any income arising under or property comprised in "a settlement" - Discovery - Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), Section 125; Finance Act, 1936 (26 Geo. V & I Edw. VIII, c. 34), Section 18; Finance Act, 1938 (1 & 2 Geo. VI, c. 46), Sections 28, 38 and 41.
By lease dated 29th December, 1921, W (who died in December, 1940) and E demised certain properties situate abroad to a company for a term of 21 years from 10th April, 1921, at a rent of £960,000 per annum payable to trustees resident in Paris. The lease was determinable by six months' notice by either the lessors or the lessee. It also provided that the lessors might withdraw any of the properties therefrom, the rent being correspondingly reduced, and this power was exercised from time to time.
By settlement dated 30th December, 1921, W and E settled the rent payable to the Paris trustees on trusts for the benefit of their respective children or remoter issue. The trustees were directed, until the expiration of 20 years from the death of the last surviving grandchild then living of the settlors, to receive and capitalise the rent by investing the same under wide powers of investment, including power to lend on personal credit or to any company with or without security. Such investment was to be carried out at the directions of certain "authorised persons" specified by the deed of settlement, and at the material times the "authorised "persons" for this purpose were W and E. The rent so dealt with was called the "settled fund". The income of the, "settled fund", after meeting certain costs, etc., was to be divided into two parts called "W's fund" and "E's fund" and accumulated until their respective deaths or 21 years from
the date of the deed, whichever might be the earlier date, when the two funds, with the accumulations thereof, respectively described as "W's "accumulated fund" and "E's accumulated fund", were to be held in trust for their children or remoter issue as they might by deed or by will appoint. Power was reserved to W or E to appoint by will or codicil any interest in their respective funds in favour of the widow of the appointer, but by deed dated 31st March, 1937, E wholly extinguished the power so reserved to himIn these circumstances W's executors and E were assessed to tax as follows:-
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(a) On the footing that the lease and the settlement together constituted a settlement which fell within Sub-section (2) of Section 38 of the Finance Act, 1938, and was also one in which the settlors had an interest within the meaning of Sub-sections (3) and (4) of that Section:
(i) by additional assessments to Income Tax for the years 1938-39 to 1940-41;
(ii) by additional assessments to Sur-tax for the years 1937-38 to 1940-41.
(b) On the footing that W and E, being ordinarily resident in the United Kingdom at the relevant time, had transferred assets abroad and had power to enjoy the income of the Paris trustees within the meaning of Section 18 of the Finance Act, 1936:
(i) by additional assessments to Income Tax for the years 1936-37 to 1940-41 (the assessments for the years 1938-39 to 1940-41 being alternative assessments to those made under (a) (i) above);
(ii) by additional assessments to Sur-tax for the year 1936-37.
On appeal to the Special Commissioners, the Appellants contended, inter alia:-
(a) that the assessments were not authorised as there had been no discovery within Section 125 of the Income Tax Act, 1918;
(b) that the lease did not form part of a "settlement" within Sections 38 and 41 of the Finance Act, 1938; that, for the purposes of Sub-section (2) of Section 38, the settlors had no power to determine the settlement and that if there was such a power, neither the settlors nor their wives would become beneficially entitled to the property or income arising from property comprised in the settlement; that, for the purposes of Sub-sections (3) and (4) of Section 38, neither the settlors nor their wives had any "interest" in the income arising under or property comprised in the settlement;
(c) that, for the purposes of Section 18 of the Finance Act, 1936, neither W nor E was ordinarily resident in this country at the material dates; neither of them had made a transfer of assets whereby income became payable to a person abroad; neither of them had power to enjoy income of such a person or was entitled to receive any capital sum in connection with such a transfer or associated operation; and that avoidance of liability to taxation was not the main purpose or one of the purposes of any transfer of assets made by either of them.
The Special Commissioners found against the Appellants on all these contentions, and dismissed the appeals.
Held, :-
1. that although there had been a transfer of assets such as is described in the introductory words of the Section, the provisions of Section 18, Finance Act, 1936, did not apply, since:-
(a) in that Section (and in Section 38, Finance Act, 1938) the word "wife" does not include the settlor's widow (Sub-section (5) (a));
(b) the power to direct investment was jointly held and therefore not acquired by an individual (Sub-section (1));
(c) there was no "power to enjoy income" as defined in Sub-section (3);
2. as regards Section 38, Finance Act, 1938, that:-
(a) the "property comprised in the settlement" meant only the property charged with rights in favour of others and therefore did not include the properties which were subjects of the lease (Sub-section (2) (b));
(b) the power to determine the lease was not, therefore, a power to determine the settlement within Sub-section (2) (a);
(c) in consequence, neither W nor E nor their respective wives could become beneficially entitled to property comprised in the settlement or income arising therefrom within Sub-section (2)(b); and
(d) neither W nor E had an interest in the settlement within the terms of Sub-section (3);
(e) the power held by W and E as "authorised persons" to direct investments was of a fiduciary character, and therefore outside the ambit of Sub-section (4);
3. that in consequence neither W nor E was assessable to Income Tax or Sur-tax under the provisions of Section 18, Finance Act, 1936, and Section 38, Finance Act, 1938.
(1) Lord Vestey's Executors and Vestey v. Commissioners of Inland Revenue
CASE
Stated under the Finance Act, 1927, Section 42 (7), and Income Tax Act, 1918, Section 149, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the King's Bench Division of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 21st and 22nd December, 1942, the executors of the Right Honourable William Baron Vestey (he having died on 10th December, 1940) and Sir Edmund Hoyle Vestey appealed against the following additional assessments to Sur-tax made upon them respectively:-
Executors of Lord Vestey |
||
1937-38 |
in the sum of |
£292,916 |
1938-39 |
" " " " |
£238,750 |
1939-40 |
" " " " |
£319,766 |
1940-41 |
" " " " |
£218,301 |
Sir Edmund Vestey |
||
1937-38 |
in the sum of |
£292,916 |
1938-39 |
" " " " |
£238,750 |
1939-40 |
" " " " |
£320,000 |
1940-41 |
" " " " |
£320,000 |
The said assessments were intended, pursuant to Section 38 (2), Finance Act, 1938, to comprise the income alleged by the Respondents to have arisen under a number of transactions which the Respondents contended amounted to an "arrangement" and therefore a "settlement" as defined by Section 41 (4)(b), Finance Act, 1938, and attributable to Lord Vestey and Sir Edmund Vestey (hereinafter referred to jointly as "the Vesteys" or separately as "William" and "Edmund" respectively) as settlors within the meaning of the said Section 41 (4)(b) in equal shares under the provisions of the said Section 38 (2), in so far as the said income was related to and arose from a rent of £960,000 per annum payable under a lease executed in Brussels dated 29th December, 1921 (hereinafter called "the "lease"), between the Vesteys of the first part, Union Cold Storage Co., Ltd. (hereinafter called "Union") of the second part and Charles Auguste Kennerley Hall, James Meeres Drabble and Kenneth Stirling (all persons residing in Paris, France, and hereinafter called "the Paris trustees") of the third part, who were trustees of a deed of settlement dated 30th December, 1921, and executed in Paris (hereinafter called "the deed of settlement"), to which trustees the Vesteys had transferred the aforesaid rent upon the trusts, terms and conditions and subject to the powers of appointment therein set out and hereinafter referred to. The lease contained, inter alia, this recital:
Whereas the Lessors are now absolutely entitled … to the "hereditaments and premises…set forth in the First Schedule hereto "and are also entitled to the full beneficial interest and power of "dealing with the hereditaments…set forth in the Second Schedule.
As the Special Commissioners, in answer to precepts issued by them on 2nd January, 1942, under the powers conferred upon them by Paragraph 4 of Part III of the Third Schedule to the Finance Act, 1938, had been informed that the Paris trustees had acquired approximately one-third of the properties comprised in the lease, two-thirds only of the rent had been included in the assessments; but
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