Capital gains tax — Trust of land — Contract for sale of land — Change in beneficial interests prior to completion — Whether disposal deemed to be made by those who were beneficiaries at time of contracting — Sections 27(1) and 46(1) of Capital Gains Tax Act 1979 — Appeal allowed
The appellant and his wife were two of the beneficial owners of land held on trust for three beneficiaries in undivided shares. In 1987, the trustees of the land entered into a contract to sell it to a purchaser. In 1989, before the completion of the sale, the appellant and his wife created settlements in Bermuda, with a Bermudan company as trustee, and assigned part of their beneficial interest in the land, subject to the contract of sale, to those trusts. The sale was completed in three tranches between 1990 and 1992.
An issue arose as to the capital gains tax payable by the appellant in respect of the sale. The relevant statutory provision was section 27(1) of the Capital Gains Tax Act 1979, which provided that, for tax purposes, the disposal of an asset “under a contract” was deemed to take place at the time at which the contract was made, not at the time of conveyance. The Inland Revenue assessed tax on the basis that all gains resulting from the sale were to be treated as gains arising from a disposal made by the beneficiaries of the UK trusts. This was by virtue of the provisions for bare trusts in section 46(1) of the 1979 Act. At the time of the conveyance, one of the beneficiaries had been the Bermudan trustee. However, the Revenue’s position was that the events following the 1987 sale contract, including the transfer of part of the beneficial interest to the Bermudan trusts, had to be disregarded under section 27(1). Accordingly, it assessed the appellant for tax on the basis of his and his wife’s original beneficial interest. The appellant’s appeal succeeded, with the court holding that the matters deemed under section 27(1) were confined to the time of the disposal, and not to the parties to it or the subject matter of it. The Revenue’s appeal was allowed in the court below, and the appellant appealed.
Held: The appeal was allowed.
Section 27(1) of the 1979 Act was concerned solely with fixing the time of disposal by a person whose identity was to be ascertained by other means. It followed that the disposal under the conveyance to the purchaser had been made by the Bermudan trustee, not by the appellant and his wife. When the trustees of the land conveyed it to the purchaser, section 27(1) made the disposal of beneficial interests by the appellant, his wife and the other beneficiary relate back to the date of the contract in 1987. Section 46(1) required the trustees for sale to be treated as nominees for the Bermudan trustee to the extent of the interests acquired by that company in 1989. But section 27(1) could not, and did not, produce the absurd result that the interests that the Bermudan trustee had acquired in 1989 were instead to be treated as having been disposed of by the appellant and his wife in 1987.
Launcelot Henderson QC and David Rees (instructed by the solicitor to the Inland Revenue) appeared for the appellant; Robert Venables QC and Amanda Hardy (instructed by Stokes Solicitors, of Portsmouth) appeared for the respondent.
Sally Dobson, barrister
