Trustees holding land on bare trust for taxpayer and others — Trustees contracting to sell — Transfers of different parts deferred — Taxpayer beneficiary transferring part of his beneficial interest into a differently constituted trust — Whether eventual completion of contract operating as disposal by taxpayer of interests under both trusts — Appeal allowed
In April 1987, the legal title to 29 acres of farmland in Hampshire (the farm) was held by the appellant taxpayer and his brother, as trustees, on trust for themselves and others as tenants in common (the UK trust). Later that month, the trustees contracted to sell the farm to a development company on terms that permitted the buyer to call for the transfer of different tranches of the farm at various dates over the following seven years. With regard to a price-fixing formula, it was envisaged that the total price would eventually exceed £4m. Some months later, the development company assigned its interest in the contract to C.
In December 1988, the taxpayer and his wife created a settlement in Bermuda, under which they acquired life interests, and a Bermudan company was appointed as sole trustee. In the following tax year (1989/1990), the same parties transferred one-half of their respective interests under the UK trust into the Bermudan settlement. The 1987 contract was thereafter completed in three tranches, the respective transfers to C being effected by the trustees of the UK trust (who still had legal title to the farm) in the tax years 1990/1991, 1991/1992 and 1992/1993. While accepting that he was liable for capital gains tax in respect of his beneficial gains under the UK trust, the taxpayer disputed that the same applied to the corresponding gains under the Bermuda trust, as the latter, unlike the UK trust, was not a bare trust.
Before the special commissioner, the Inland Revenue argued that the Bermuda gains had to be treated as gains arising from a disposal deemed to have been made by the taxpayer himself under the provisions for bare trusts made by section 46 of the Capital Gains Tax Act 1979*. According to the Inland Revenue, the events following the contract had to be disregarded, this being the effect of section 27(1) of the 1979 Act†, which provides that where an asset is disposed of and acquired under a contract, “the time at which the disposal and acquisition is made is the time the contract is made (and not, if different, the time at which the asset is conveyed or transferred)”. The commissioner accepted that argument, and the taxpayer appealed.
Held: The appeal was allowed.
While the section did indeed deem something that, in fact, had happened, for capital gains tax purposes, at a different time, that was all it did in the way of deeming. It did not deem a disposal that was actually made by one person to have been made by another person.
* Editor’s note: See now section 60 of the Taxation of Chargeable Gains Act 1992
† Editor’s note: See now section 28 of the 1992 Act
Robert Venables QC and Amanda Hardy (instructed by Stokes, of Portsmouth) appeared for the appellant; Launcelot Henderson QC (instructed by the solicitor to the Inland Revenue) appeared for the respondent.
Alan Cooklin, barrister
