![]() |
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] [DONATE] | |||||||||
England and Wales Court of Appeal (Civil Division) Decisions |
||||||||||
PLEASE SUPPORT BAILII & FREE ACCESS TO LAW
To maintain its current level of service, BAILII urgently needs the support of its users.
Since you use the site, please consider making a donation to celebrate BAILII's 25 years of providing free access to law. No contribution is too small. If every visitor this month gives just £5, it will have a significant impact on BAILII's ability to continue providing this vital service.
Thank you for your support! | ||||||||||
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Barclays Wealth Trustees (Jersey) Ltd & Anor v Revenue And Customs [2017] EWCA Civ 1512 (13 October 2017) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2017/1512.html Cite as: [2018] WLR 2312, [2017] EWCA Civ 1512, [2017] WTLR 917, [2017] WLR(D) 661, [2018] 1 WLR 2312, [2017] STC 2465, [2017] BTC 27 |
[New search]
[Context]
[View without highlighting]
[Printable RTF version]
[Buy ICLR report: [2018] 1 WLR 2312]
[View ICLR summary: [2017] WLR(D) 661]
[Help]
![]() |
||
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE MANN
Strand, London, WC2A 2LL |
||
B e f o r e :
LORD JUSTICE SALES
and
LORD JUSTICE HENDERSON
____________________
(1) BARCLAYS WEALTH TRUSTEES (JERSEY) LIMITED (2) MICHAEL DREELAN |
Appellants |
|
- and - |
||
THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS |
Respondents |
____________________
Mr Rupert Baldry QC and Ms Sadiya Choudhury (instructed by the General Counsel and Solicitor to HMRC) for the Respondents
Hearing date: 24 May 2017
____________________
Crown Copyright ©
Lord Justice Henderson:
Introduction
"A person beneficially entitled to an interest in possession in settled property shall be treated for the purposes of this Act as beneficially entitled to the property in which the interest subsists."
In other words, a life or lesser interest in possession in settled property is equated with beneficial ownership of the underlying trust property itself.
Excluded property
"Property situated outside the United Kingdom is excluded property if the person beneficially entitled to it is an individual domiciled outside the United Kingdom."
Two conditions therefore have to be satisfied if property comprised in an individual's free estate is to qualify as excluded property. The property in question must be situated outside the United Kingdom, and the beneficial owner of the property must be non-UK domiciled. A person's domicile is ascertained for this purpose in accordance with the general law, with the important exception that under section 267(1) a person not domiciled in the United Kingdom at any relevant time is treated for the purposes of the 1984 Act as domiciled in the United Kingdom (and not elsewhere) if:
"…
(b) he was resident in the United Kingdom in not less than 17 of the 20 years of assessment ending with the year of assessment in which the relevant time falls."
"Where property comprised in a settlement is situated outside the United Kingdom –
(a) the property (but not a reversionary interest in the property) is excluded property unless the settlor was domiciled in the United Kingdom at the time the settlement was made …"
It can be seen that this provision is analogous to section 6(1), in the sense that two similar conditions have to be satisfied if the settled property in question is to qualify as excluded property, one relating to the situs of the property and the other relating to the domicile of the settlor. It is important to note, however, that the domicile condition only has to be satisfied by the settlor "at the time the settlement was made". The effect of that requirement is one of the central issues arising on the appeal, but it is at least common ground that where a settlor makes a settlement of property situated outside the United Kingdom (which I will call "foreign property" for short) at a time when he is not UK-domiciled, and the property then remains comprised in the same settlement, its status as excluded property will not be lost merely because the settlor subsequently acquires an actual or deemed domicile in the United Kingdom.
"Where property which ceases to be comprised in one settlement becomes comprised in another then, unless in the meantime any person become beneficially entitled to the property (and not merely to an interest in possession in the property), it shall for the purposes of this Chapter be treated as remaining comprised in the first settlement."
Section 82 then provides, so far as material, as follows:
"82 Excluded Property
(1) For the purposes of this Chapter … property to which section … 81 above applies shall not be taken to be excluded property by virtue of section 48(3)(a) above unless the condition in subsection (3) below is satisfied (in addition to the conditions in section 48(3) that the property is situated outside the United Kingdom and that the settlor was not domiciled there when the settlement was made).
(2) …
(3) The condition referred to in subsections (1) and (2) above is –
(a)…
(b) in the case of property to which subsection (1) … of section 81 above applies, that the person who is the settlor in relation to the second of the settlements mentioned in the subsection concerned,
was not domiciled in the United Kingdom when that settlement was made."
The facts
Settlements and settled property: relevant definitions in the 1984 Act
"43 Settlement and related expressions
(1) The following provisions of this section apply for determining what is to be taken for the purposes of this Act to be a settlement, and what property is, accordingly, referred to as property comprised in a settlement or as settled property.
(2) "Settlement" means any disposition or dispositions of property, whether effected by instrument, by parol or by operation of law, or partly in one way and partly in another, whereby the property is for the time being –
(a) held in trust for persons in succession or for any person subject to a contingency, or
(b) held by trustees on trust to accumulate the whole or part of any income of the property or with power to make payments out of that income at the discretion of the trustees or some other person, with or without power to accumulate surplus income, or
(c) …,
or would be so held … if the disposition or dispositions were regulated by the law of any part of the United Kingdom; or whereby, under the law of any other country, the administration of the property is for the time being governed by provisions equivalent in effect to those which would apply if the property were so held ..."
"44 Settlor
(1) In this Act "settlor", in relation to a settlement, includes any person by whom the settlement was made directly or indirectly, and in particular (but without prejudice to the generality of the preceding words) includes any person who has provided funds directly or indirectly for the purpose of or in connection with the settlement or has made with any other person a reciprocal arrangement for that other person to make the settlement.
(2) Where more than one person is a settlor in relation to a settlement and the circumstances so require, this Part of this Act … shall have effect in relation to it as if the settled property were comprised in separate settlements."
"60 Commencement of settlement
In this Chapter references to the commencement of a settlement are references to the time when property first becomes comprised in it.
61 Ten-year anniversary
(1) In this Chapter "ten-year anniversary" in relation to a settlement means the tenth anniversary of the date on which the settlement commenced and subsequent anniversaries at ten-yearly intervals …
…
64 Charge at ten-year anniversary
(1) Where immediately before a ten-year anniversary all or any part of the property comprised in a settlement is relevant property, tax shall be charged at the rate applicable under sections 66 and 67 below on the value of the property or part at that time.
…
65 Charge at other times
(1) There shall be a charge to tax under this section –
(a) where the property comprised in a settlement or any part of that property ceases to be relevant property (whether because it ceases to be comprised in the settlement or otherwise); …
…
(7) Tax shall not be charged under this section by reason only that property comprised in a settlement ceases to be situated in the United Kingdom and thereby becomes excluded property by virtue of section 48(3)(a) above.
…"
"19. Examples of the sort in the previous paragraph can be multiplied many times over. They show that it is not necessary to have a statutory definition to determine whether there is one settlement or more, and if more than one, how many. Trust practitioners can recognise a separate settlement when they see one, and equally they can recognise a case where there is only one settlement, not several settlements, when that is what they see. Often, fiscal considerations apart, it will make little or no difference in the end whether, for example, a settlor chooses to make one large settlement, or instead to make several smaller settlements. But there is no doubt that as a matter of general principle the two courses are different and create analytically different structures. What kind of structure a particular settlor has created will depend on how he chooses to do it.
20. All of that assumes no detailed statutory definition. However, the Inheritance Tax Act 1984 has s 43, which begins by saying that the provisions of the section "apply for determining what is to be taken for the purposes of this Act to be a settlement". Notwithstanding those words of the statute, my opinion is that s 43 gives little or no guidance to answering the question of whether, in the many permutations of circumstances of which I gave a few illustrations in [18] above, there is one settlement or more than one. In my judgment the draftsman has for the most part left those questions to be answered in accordance with general principles – in accordance with what I have described above as the general understanding of trust practitioners."
Applying this approach, Park J held that there were no grounds on which to go behind the settlor's choice to execute five separate settlements, each of which had a separate identity for IHT purposes: see the summary of his conclusions at [17].
The issues
(a) the cash which represented the shares on 20 June 2011, immediately before the anniversary date, was foreign property;
(b) Mr Dreelan was not UK-domiciled when the 2001 Settlement was first established by him on 21 June 2001; and (if it matters)
(c) he was also not UK-domiciled when he transferred the 25,000 shares to the 2001 Settlement in February 2003. Accordingly, even if the addition of the shares were properly to be regarded as the making by him of a fresh settlement within the meaning of section 43, of which he was the settlor pursuant to section 44, the "settlor" condition in section 48(3) would nevertheless still be satisfied.
Discussion
"Where property which ceases to be comprised in one settlement becomes comprised in another then, unless in the meantime any person becomes beneficially entitled to the property (and not merely to an interest in possession in the property), it shall for the purposes of this Chapter be treated as remaining comprised in the first settlement."
"For my part I take the correct approach in construing a deeming provision to be to give the words used their ordinary and natural meaning, consistent so far as possible with the policy of the Act and the purposes of the provisions so far as such policy and purposes can be ascertained; but if such construction would lead to injustice or absurdity, the application of the statutory fiction should be limited to the extent needed to avoid such injustice or absurdity, unless such application would clearly be within the purposes of the fiction. I further bear in mind that because one must treat as real that which is only deemed to be so, one must treat as real the consequences and incidents inevitably flowing from or accompanying that deemed state of affairs, unless prohibited from doing so."
This statement of principle has been cited with approval in many subsequent cases, including DV3 RS Ltd Partnership v Revenue and Customs Commissioners [2013] EWCA Civ 907, [2013] STC 2150, at [13] and [14] per Lewison LJ, with whom Gloster and Maurice Kay LJJ agreed. Lewison LJ added, at [15], that the fact that deeming provisions are involved "does not displace the ordinary principles of statutory interpretation".
"Let me consider the implications of the plural "dispositions". In my view the use of the plural is merely a recognition that in a case where there is a settlement (i.e. only one settlement) it is possible for there to have been more dispositions to the trustees than one. A typical case is where a settlor creates his settlement with one disposition, and later adds more property to it by one or more other dispositions."
The judgment of the judge
"39. … The true construction of section 48(3) is one that requires one to look at the occasion of the settling of the property for the purposes of determining whether or not it is excluded property, and nothing else. It does not create a separate settlement for the other purposes of the Act, deemed or otherwise. The overall settlement for the purposes of section 64 remains the same. Rysaffe enables (and requires) one to look at basic trust law for determining that. [The judge then referred to sections 64, 61 and 60 of IHTA].
40. All those are (in the circumstances) references to the [2001 Settlement], implicitly acknowledging that property may have arrived in it at different times. That is what has happened here. The correct interpretation of section 48(3) has no impact on this. It involves considering the circumstances of the settlement of property at one point in time, and does not otherwise involve the creation of any "settlement" which differs from the overall [2001 Settlement].
41. Nor does Rysaffe itself compel a contrary conclusion on section 48(3). That case determines that the concept of what is a settlement, for the purposes of the provisions of the Act considered by Park J, is the same as that understood by the general law. Thus in his case there were 5 real world settlements, and not one, and therefore there were 5 settlements for the purposes of the Act. Park J was not considering every reference to the word "settlement" in the Act, and was not considering the detail of what was the making of the settlement for the purposes of section 48(3)(a). I therefore consider that Rysaffe does not assist Mr Ewart."
Conclusion
Lord Justice Sales:
Lord Justice McCombe: