Inheritance Tax – Exemptions – Gift to charity – Section 23(6) of Inheritance Tax Act 1984 – Deceased’s UK assets left to charitable trust established in Jersey – Whether “held on trust for charitable purposes only” so as to attract exemption in section 23(6) – Whether necessary for that purpose that relevant trust governed by UK law and subject to jurisdiction of UK courts – Appeal dismissed
The appellants were the executors of the deceased, who had been domiciled in Jersey and who, by her will, left her residuary estate on trust for the purpose of constructing homes for elderly residents of the parish of St Ouen in Jersey or, in default, to assist with the capital expenditure required by a hospice care organisation. The residuary estate included assets in the United Kingdom but the trust was established under, and subject to, Jersey law and the trustees were Jersey trustees.
The respondents determined that the appellants were liable for inheritance tax of about £600,000 on the deceased’s UK assets. They decided that the residuary estate did not qualify for the exemption under section 23 of the Inheritance Tax Act 1984 applicable to gifts to charities. They took the view that the residuary estate was not “held on trust for charitable purposes only”, within the meaning of section 23(6), in circumstances where the trust in question was not governed by UK law and was not are subject to the jurisdiction of the UK courts. They reached that conclusion by analogy with the similar wording of section 37 of the Income Tax Act 1918, which had been given a similar interpretation by the House of Lords in Camille and Henry Dreyfus Foundation Inc v Inland Revenue Commissioners [1956] AC 39.
The respondents’ decision was upheld in the court below: see [2014] EWHC 3010 (Ch). The appellants appealed. They did not dispute that the first limb of section 23, concerning gifts that became “the property of charities” was confined to charities established under the law of some part of the UK, but they argued that the same limitation did not apply to property “held on trust for charitable purposes” under the second limb.
Held: The appeal was dismissed.
(1) It was a well-established principle that, where an Act used a form of words with a previous legal history, that might be relevant to its interpretation: Barras v Aberdeen Sea Trawling & Fishing Co Ltd [1933] AC 402 applied. Applying that principle, in light of the decision in Dreyfus and the legislative history, it was not disputed the first limb of section 23(6) of the 1984 Act only applied to bodies or trusts that were governed by the law of some part of the UK. The second limb of section 23 had to be seen in the context of the whole provision, including the first limb which did require the relevant body of persons or trust to be governed by UK law.
Viewed in that context, the second limb could not have the meaning for which the appellants contended. If it were so construed, it would have a much broader scope than the first limb and section 23 would discriminate between foreign law charities that were incorporated, which would be excluded unless they held the property on trust, and those formed under trust, which would not be excluded. There was no good reason why parliament might have chosen to draw such distinctions. There would also be practical difficulties in considering whether a foreign law trust held property on trust for charitable purposes only or was established for charitable purposes only. While the instant case, concerning a Jersey trust, would not present any particular difficulty, such a broad and open-ended interpretation might in other cases necessitate an abstruse and controversial enquiry, hardly to be answered short of litigation: Dreyfus applied.
That respondents’ interpretation was further supported by a consideration of the structure of section 23. Section 23(1) was the primary exempting provision and concerned transfers of property to “charities”, which, as defined in section 989, called for a UK link. The broader meaning of “property which is given to charities” was introduced by the definition in section 23(6) and, in so far as the terms of section 23(6) were ambiguous, section 23(1) shed light on their meaning so as to suggests a UK link.
Accordingly, while the expressions “trust” and “held on trust” elsewhere in the 1984A Act could denote a foreign trust, in the context of section 23(6) the trust had to be governed by UK law and subject to the jurisdiction of the UK courts.
Richarfd Vallat (instructed by Irwin Mitchell LLP) appeared for the appellants; David Yates (instructed by the General Counsel and Solicitor for HM Revenue and Customs) appeared for the respondents.
Sally Dobson, barrister
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