“If it is proved to the satisfaction of the Board that too much tax has been paid” in respect of the relevant taxable event, “the Board shall repay the excess”, (b) on the basis that the appellant wrongly paid the disputed sum on the correct interpretation of the following provisions in the settlements regime: (1) Section 64(1) provides that “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”
“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,…” (Emphasis added.)
“(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 (except section 48(4) to (6)) shall have effect in relation to it as if the settled property were comprised in separate settlements.”
“Where any payment has been made and accepted in satisfaction of any liability for tax and on a view of the law then generally received or adopted in practice, any question whether too little or too much has been paid or what was the right amount of tax payable shall be determined on the same view, notwithstanding that it appears from a subsequent legal decision or otherwise that the view was or may have been wrong.” (Emphasis added.)
“In the light of the definitions of “settlement” and “settled property” in s 43, [HMRC’s] view is that a settlement in relation to any particular asset is made at the time when that asset is transferred to the settlement trustees to hold on the declared trusts. Thus, assets added to a settlor's own settlement made at an earlier time when the settlor was domiciled abroad will not be “excluded”, wherever they may be situated, if the settlor has a UK domicile at the time of making the addition.”
“the legislation refers to the settlor’s domicile at the time the settlement was made. You must proceed on the basis that, for any given item of property held in a settlement, the settlement was made when that property was put in the settlement. Consult TG or your Team Leader if this view is challenged.”
“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.” (Emphasis added.)
“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.”
“29. The courts in conducting statutory interpretation are “seeking the meaning of the words which Parliament used”: Black-Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG[1975] AC 591 , 613 per Lord Reid. More recently, Lord Nicholls of Birkenhead stated: “Statutory interpretation is an exercise which requires the court to identify the meaning borne by the words in question in the particular context.” (R v Secretary of State for the Environment, Transport and the Regions, Ex p Spath Holme Ltd[2001] AC 349 , 396). Words and passages in a statute derive their meaning from their context. A phrase or passage must be read in the context of the section as a whole and in the wider context of a relevant group of sections. Other provisions in a statute and the statute as a whole may provide the relevant context. They are the words which Parliament has chosen to enact as an expression of the purpose of the legislation and are therefore the primary source by which meaning is ascertained. There is an important constitutional reason for having regard primarily to the statutory context as Lord Nicholls explained in Spath Holme, p 397: “Citizens, with the assistance of their advisers, are intended to be able to understand parliamentary enactments, so that they can regulate their conduct accordingly. They should be able to rely upon what they read in an Act of Parliament.” … 31. Statutory interpretation involves an objective assessment of the meaning which a reasonable legislature as a body would be seeking to convey in using the statutory words which are being considered. Lord Nicholls, again in Spath Holme[2001] 2 AC 349 , 396, in an important passage stated: “The task of the court is often said to be to ascertain the intention of Parliament expressed in the language under consideration. This is correct and may be helpful, so long as it is remembered that the ‘intention of Parliament’ is an objective concept, not subjective. The phrase is a shorthand reference to the intention which the court reasonably imputes to Parliament in respect of the language used. It is not the subjective intention of the minister or other persons who promoted the legislation. Nor is it the subjective intention of the draftsman, or of individual members or even of a majority of individual members of either House … Thus, when courts say that such-and-such a meaning ‘cannot be what Parliament intended’, they are saying only that the words under consideration cannot reasonably be taken as used by Parliament with that meaning.” “Citizens, with the assistance of their advisers, are intended to be able to understand parliamentary enactments, so that they can regulate their conduct accordingly. They should be able to rely upon what they read in an Act of Parliament.” “The task of the court is often said to be to ascertain the intention of Parliament expressed in the language under consideration. This is correct and may be helpful, so long as it is remembered that the ‘intention of Parliament’ is an objective concept, not subjective. The phrase is a shorthand reference to the intention which the court reasonably imputes to Parliament in respect of the language used. It is not the subjective intention of the minister or other persons who promoted the legislation. Nor is it the subjective intention of the draftsman, or of individual members or even of a majority of individual members of either House … Thus, when courts say that such-and-such a meaning ‘cannot be what Parliament intended’, they are saying only that the words under consideration cannot reasonably be taken as used by Parliament with that meaning.”
“(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) unless the condition in sub-section (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). … (3) The condition referred to in subsection (3)(1) above is – … (b) … That the person who is the settlor in relation to the second of the settlements mentioned in the sub-section concerned, was not domiciled in the United Kingdom when that settlement was made.”
“the provisions of the 1984 Act relating to settlements are, in the absence of special provision, for the most part left to be interpreted in accordance with the general understanding of trust practitioners: see his judgment at paras 18-21.”
“…After pointing out at [18] that the decision whether to make a single settlement, or several settlements, or to add property to an existing settlement, is one for the settlor to take, Park J continued: "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. "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."”
“It appears that the distinguished editors of Dymond’s Capital Taxes are of the same opinion. In para 16.232 they make the point that there are some inheritance tax provisions which enact that in specific circumstances a single settlement under the general law may be more than one settlement for inheritance tax, and (conversely), that there are other inheritance tax provisions which enact that in other specific circumstances a structure which the general law regards as separate settlements may be a single settlement for inheritance tax. But they go on to write: ‘In the absence of special provisions, however, the general law must decide’ They clearly do not regard s 43 as a ‘special provision’ in this sense. In the present case the Revenue do not suggest that any such special provision applies. [21] ….I do not accept that the use of the plural means any more than that it is possible to have more than one disposition to the trustees of a single settlement. In particular, the use of the plural is not a positive enactment that, where there are two or more dispositions to different settlements, they are to constitute one settlement for inheritance tax purposes even if they would constitute two or more settlements under the general law.”
“to each act of settling property by a disposition, even though the opening words of the subsection ("Where property comprised in a settlement is situated outside the United Kingdom") are naturally read as referring to the ongoing settlement as it exists from time to time and as a trust lawyer would identify it, rather than to each dispositive act by which it was constituted. On the correct purposive approach, he submits, the court should not be reluctant to construe the word "settlement" as having two different meanings within section 48(3), although if necessary he would adopt the preferred view of the judge at [28] that both references to "settlement" in the subsection are to the individual dispositive acts whereby property is settled.”
“52. First, I consider the better view to be that the 2001 settlement was a single settlement for inheritance tax purposes, constituted by a number of separate dispositions of property to be held on the trusts thereof. Those dispositions included the three transfers to the trustee made by Mr Dreelan in 2001, his transfer of the 25,000 Qserv shares to the trustee on4 February 2003 , and the transfer effected by the 2011 appointment. Not only is this how a trust lawyer or practitioner would view the matter, but it fits comfortably with the definition of “settlement” in section 43(2) which applies for all purposes of the 1984 Act. In particular, the express reference to “disposition or dispositions of property” in the definition is in my view naturally read as intended to cover the common situation where a settlement is first made, often with a small or nominal sum of money, and further assets are then added by the settlor. This was rightly recognised by Park J in the Rysaffe case, where he said, at para 21: “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.” 53. Secondly, I find it implausible to suppose that in section 48(3) the same word “settlement” was intended by Parliament to have two different meanings, or that it has a single meaning which requires one to focus separately on each occasion when property is added to a settlement. At least in cases of the type which I have described, the natural (and in my opinion correct) interpretation of the subsection is that it requires one to look at a single settlement as it is constituted from time to time, whether by one or a series of transfers into settlement, and provides that any foreign property comprised in it is excluded property unless the settlor was United Kingdom-domiciled “at the time the settlement was made”
“ …the Qserv shares were transferred to the Trustee at a time when Mr Dreelan was still non-UK domiciled, and if they had never left the 2001 Settlement their proceeds, if invested as foreign property, would undoubtedly have qualified as excluded property. I can see no mischief which might require the language of the 1984 Act to be interpreted so as to produce the opposite conclusion merely because there was an intermediate transfer of the Qserv shares between the two settlements. The facts of the present case are highly unusual, and there is no suggestion that they formed part of any scheme of tax avoidance. The consequences within Part III of a transfer of property between settlements are dealt with by section 81, and I see no occasion to strain the language of that section, or of section 48, in order to reach a different conclusion in this case.”
“For completeness, I should mention that different considerations may arise in cases where a settlor makes an offshore settlement when he is non-UK domiciled, later acquires a UK domicile, and then makes further substantial transfers of property into the settlement. It may arguably seem anomalous that, in such a case, the property in question, if it is or becomes foreign property, should qualify as excluded property in the settlement merely because the settlor was non-UK domiciled when the settlement was originally made. I emphasise that the present case is not of that character, because the Qserv shares originated in the 2001 Settlement, and were transferred to it at a time when Mr Dreelan was non-UK domiciled. I express no view on the question whether the same result as in the present case should be reached in cases of the other type which I have described, because wider policy considerations may then be engaged. For similar reasons, I prefer to express no view on some of the wider arguments which were addressed to us but are unnecessary for the resolution of this case.”
“I can detect no logic, even in an artificially constructed tax world, for allowing excluded property status to after-contributed property by a domiciled settlor, merely because when he created the settlement in the first place he was non-domiciled. I do not consider it plausible that Parliament had that intention. It should be noted the structure of the Act would not allow that consequence where the subsequent contributor was a domiciled third party…..”
“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.”
“In determining whether property comprised in the settlement which became so comprised before10 December 1974 is excluded property, section 45 of this Act [the deemed domicile rule] shall be disregarded.”
“If the words used by Parliament are plain, there is no room for the "anomalies" test, unless the consequences are so absurd that, without going outside the statute, one can see that Parliament must have made a drafting mistake. If words "have been inadvertently used," it is legitimate for the court to substitute what is apt to avoid the intention of the legislature being defeated: per MacKinnon L.J. in Sutherland Publishing Co. Ltd. v. Caxton Publishing Co. Ltd.[1938] Ch. 174 , 201. This is an acceptable exception to the general rule that plain language excludes a consideration of anomalies, i.e. mischievous or absurd consequences. If a study of the statute as a whole leads inexorably to the conclusion that Parliament has erred in its choice of words, e.g. used "and" when "or" was clearly intended, the courts can, and must, eliminate the error by interpretation. But mere "manifest absurdity" is not enough: it must be an error (of commission or omission) which in its context defeats the intention of the Act.” (e) Most of the speech of Lord Simon of Glaisdale which includes the following comments at 237 C to F: ……(5) Parliament may well be prepared to tolerate some anomaly in the interest of an overriding objective; (6) what strikes the lawyer as an injustice may well have seemed to the legislature as no more than the correction of a now unjustifiable privilege or as a particular misfortune necessarily or acceptably involved in the vindication of some supervening general social benefit; (7) the parliamentary draftsmen knows what objective the legislative promoter wishes to attain, and he will normally and desirably try to achieve that objective by using language of the appropriate register in its natural, ordinary and primary sense: to reject such an approach on the grounds that it gives rise to an anomaly is liable to encourage complication and anfractuosity in drafting; (8) Parliament is nowadays in continuous session, so that an unlooked for and unsupportable injustice or anomaly can be readily rectified by legislation: this is far preferable to judicial contortion of the law to meet apparently hard cases with the result that ordinary citizens and their advisers hardly know where they stand. All this is not to advocate judicial supineness: it is merely respectfully to commend a self-knowledge of judicial limitations, both personal and constitutional. To apply it to the argument on behalf of the appellant based on anomaly, a court would only be justified in departing from the plain words of the statute were it satisfied that: (1) there is clear and gross balance of anomaly; (2) Parliament, the legislative promoters and the draftsman could not have envisaged such anomaly, could not have been prepared to accept it in the interest of a supervening legislative objective; (3) the anomaly can be obviated without detriment to such legislative objective; (4) the language of the statute is susceptible of the modification required to obviate the anomaly.” (Emphasis added.)
“…In my view one should first seek to determine the ordinary and natural meaning of those words and then consider whether there is anything in the context in which they are used to lead to the conclusion that the proper interpretation of them involves a departure from the ordinary and natural meaning…In the light of these statements [in certain books], it appears that in the 19th century the words 'an interest in possession' would have been interpreted as ordinarily meaning the possession of a right to the present enjoyment of something… Each side contended that the case put forward by the other side would give rise in a number of instances to anomalies and injustice. Time was spent in examining whether or not the alleged anomaly would in fact arise. I did not find this helpful for, as Buckley LJ said,...in the course of his judgment in this case: 'The ingenuity of counsel can almost always produce possible anomalies in either direction, and that has been the case here.' In my opinion the words 'interest in possession' in schedule 45 should be given their ordinary and natural meaning, which I take to be the present right of present enjoyment...”
“The Commissioners for Her Majesty’s Revenue and Customs have determined – In relation to – A. A settlement made on14 September 1992 by [the Settlor] ("the Settlor") and called the Tiodab Trust ("the Settlement"); B. A claim for repayment of inheritance tax made by Salamanca Group Trust (Switzerland) SA ("former name of Accuro Trust (Switzerland) SA") ("the Trustee") on20 May 2015 ("the Claim") in relation to inheritance tax and interest paid on15 May 2013 in respect of the ten year anniversary charge occurring on14 September 2012 . That – 1. It has not been proved to the satisfaction of the Commissioners for HM Revenue and Customs that too much inheritance tax and interest has been paid having regard to section 241 and 255Inheritance Tax Act 1984 (“IHTA”). 2. Immediately before the ten year anniversary occurring on14 September 2012 the value of the relevant property comprised in the Settlement was£43,397,593.00 . 3. A charge to inheritance tax arises on the occasion of the ten year anniversary in respect of all of the property comprised in the Settlement which was relevant property immediately before that anniversary, in accordance with sections 64 and 66 IHTA. 4. The rate of inheritance tax calculated in accordance with section 66 is 5.958% and the inheritance tax due in respect of the charge is£1,680,658.59 all of which has been paid.”
“Section 221 - Notices of determination (1) Where it appears to the Board that a transfer of value has been made or where a claim under this Act is made to the Board in connection with a transfer of value, the Board may give notice in writing to any person who appears to the Board to be the transferor or the claimant or to be liable for any of the tax chargeable on the value transferred, stating that they have determined the matters specified in the notice. (2) The matters that may be specified in a notice under this section in relation to any transfer of value are all or any of the following – (a) the date of the transfer; (b) the value transferred and the value of any property to which the value transferred is wholly or partly attributable; (c) the transferor; (d) the tax chargeable (if any) and the persons who are liable for the whole or part of it; (e) the amount of any payment made in excess of the tax for which a person is liable and the date from which and the rate at which tax or any repayment of tax overpaid carries interest; and (f) any other matter that appears to the Board to be relevant for the purposes of this Act.” (a) the date of the transfer; (b) the value transferred and the value of any property to which the value transferred is wholly or partly attributable; (c) the transferor; (d) the tax chargeable (if any) and the persons who are liable for the whole or part of it; (e) the amount of any payment made in excess of the tax for which a person is liable and the date from which and the rate at which tax or any repayment of tax overpaid carries interest; and (f) any other matter that appears to the Board to be relevant for the purposes of this Act.”
“The jurisdiction of the tribunal in cases such as this where the Commissioners are exercising discretionary powers has been clearly established in previous cases. It is, for instance, clear that the tribunal cannot substitute its own discretion for that of the Commissioners for the tribunal has no discretion in these matters. If it is alleged that the Commissioners have reached a wrong decision then there can be a question of law but only of a limited character. The question would be whether their decision was unreasonable in the sense that no reasonable panel of Commissioners properly directing themselves could reasonably reach that decision. To enable the tribunal to interfere with the Commissioners' decision it would have to be shown that they took into account some irrelevant matter or had disregarded something to which they should have given weight.”
“In furtherance of his argument that, once the tribunal had decided that the decision of the Commissioners was flawed, it could substitute its own discretion, counsel for the company was constrained to submit that it was for the Tribunal to decide whether it appeared to it “requisite for the protection of the revenue” to require a taxable person to give security. I am quite unable to accept this submission. It seems to me that the “statutory condition”…. which the Tribunal has to examine in an appeal under s 40(1)(n) is whether it appeared to the Commissioners requisite to require security. In examining whether that statutory condition is satisfied the Tribunal will, to adopt the language of Lord Lane, consider whether the Commissioners had acted in a way in which no reasonable panel of Commissioners could have acted or whether they had taken into account some irrelevant matter or had disregarded something to which they should have given weight. The Tribunal may also have to consider whether the Commissioners have erred on a point of law. I am quite satisfied, however, that the Tribunal cannot exercise a fresh discretion on the lines indicated by Lord Diplock in Hadmor. The protection of the revenue is not a responsibility of the Tribunal or of a court. I do not consider that it is necessary or would be appropriate in this case to give guidance as to other categories of appeal under section 40(1), other than to say that in my view the function and powers of a Tribunal in each case will depend in large measure on the nature of the decision appealed against and of course on any special statutory provisions….. ….It was conceded by Mr. Engelhart, in my view rightly, that where it is shown that, had the additional material been taken into account, the decision would inevitably have been the same, a Tribunal can dismiss an appeal…..”
“There seems to be some misunderstanding here. Our comments...do not state, and were not intended to suggest, that an addition of assets by a settlor... is itself treated as constituting a separate settlement, made at the time of the addition. As explained in the article, our view is that, in relation to any particular asset comprised in a given settlement, the settlement was made at the time when the asset (or any other asset...) became subject to the trusts of the settlement. Put another way, new assets added by a settlor to his/her existing trust count as assets freshly settled So, it is the settlor’s domicile at the time of the addition, ...which is relevant in determining whether the asset is 'excluded property'. As I am sure you will appreciate, sections 80 and 82 ... may also have a bearing on the application ...of the provisions on 'excluded property'.” (b) On12 October 1998 Mr Hutton asked for clarification: “Are you saying that, although there is a single settlement, that settlement is made in relation to each asset comprised in the settlement at the time when that asset becomes so comprised.”
“I am sorry if the comments in our letter of 3 July lack adequate clarity. It is indeed our view (subject to section 44(2))…that there would be a single settlement which was made in relation to each asset comprised in the settlement at the time when that asset (or any previous asset which the current asset now represents) became so comprised.” (d) On20 May 1999 Mr Zigmond, then the Chairman of the Sub-Committee wrote to HMRC and a response was sent by Mr Peter Twiddy of HMRC on28 September 2001 . Mr Zigmond’s comments included the following: “What is the Inland Revenue’s view in circumstances...where out of the assets 1.5 million a proportion (0.3 million ...) is situated in the UK and the remaining 1.2 million is situated outside the UK, but it is not possible to say on the ten-year anniversary whether the 0.3 million derives from the initial settlement of 1 million or the later 0.5 million addition? In these circumstances would you agree the trustees can properly regard the UK situated assets with a value of 0.3 million as forming part of the 0.5 million later additions to trust, so that in the Inland Revenue’s view liability arises on 0.5 million (but no greater sum). …Please could you clarify further the Inland Revenue’s view on this, and in particular how the Inland Revenue’s view is supported by the words of the legislation…A more detailed explanation, as well as being most helpful to me personally, may be of general interest to our members (and may save the Inland Revenue correspondence in specific cases).” (e) In his reply Mr Twiddy said: “…There can be no single response to this question, we would have look at each case on merits…certainly we would expect trust records to be kept scrupulously...In my experience the Revenue does take a pragmatic and sympathetic view whenever this can be warranted…I do not see why the reference to the settlement in these provisions should be read differently from the settlement in section 48(3). On the interpretation of 4(c) above one need not draw that inference, indeed to do so would result in manifest absurdity.”
“The generally received point and adopted in practice point, I understood to be two separate points. So that in looking at section 255, only one of them needed to be satisfied for it to apply…… Now what is meant by “generally received” was a bit unclear. We did obviously look at a case I think which is mentioned in Ms Boraster’s letter, is it Murray's Trustees…Which I don’t think we found terribly helpful, given that it was on something that was different. But where we probably thought we had a stronger case was on the adopted in practice. And in doing that, we looked at what was being said publicly, and also what our experience in this area was in terms of the approach taxpayers had taken in relation to HMRC. So in that regard we looked at what was in the publications in the ones that I’ve mentioned earlier on. And we reviewed what we knew about how taxpayers had behaved, certainly since 1997. And our view was that there had been virtually no challenge on this at all. I can’t recall if - I think we knew at the time there was a potential issue with [Barclays], because I think the litigation may have started or been close to starting so we would have been aware that there was some issue there.” (3) On his interpretation “adopted in practice is a stand-alone” provision without generally in front of it. The view he took was to ask “how do people behave, what do they do?…In terms of: do they act in a way which is compliant with HMRC's view or do they not”
“they need obviously to take it into account…And it may be that they do as HMRC suggest and keep adequate records or else they take steps which don’t put them into direct contravention and they might take a different course of action which might achieve their objectives.” (4) He confirmed that in coming to his decision he took into account that there had not been many challenges by taxpayers to HMRC on this point. There are no other factors that he took into account that do not appear in his statement: “the principal ones were our experience and what was being said publicly”
“No, I don’t think I would have reached a different decision at all. The Trust Taxation book I think sets out in quite detail the technical arguments, but none of those are dissimilar to the ones in some of the other sources. I have looked at some of the more neutral ones… and I think my view remains exactly the same, that although there is quite widespread criticism in the professional press, it just remains a fact that taxpayers in general are not sort of willing to put their money where their advisers’ mouths are…I don’t think it would have altered my view at all.” (7) His understanding of HMRC’s position on the issue is that “throughout that...you look at the domicile at the point the property is added, and assess its status. The argument that there is a new settlement each time something is added is not a point that HMRC have taken since 1997.”
“The guidance we work to says we are obliged to adopt that position [in the stated view]”
“Because if there is the potential for a ten-year anniversary [charge], that’s also going to weigh in their decision making”
“raise an intriguing question, namely what is the position where a UK domiciliary adds property to a settlement he made when he was domiciled abroad. Since such an addition forms part of the original settlement it should be excluded property if it is situated abroad. Whether the Revenue would seek to resist this contention is not known – after all, on this view property added by a foreign domiciliary to a settlement he made when he was a UK domiciliary is not capable of being excluded property. Even if the Revenue do argue the point, it appears that a foreign domiciliary can lose nothing by establishing a small pilot settlement in anticipation of subsequently becoming domiciled in the UK.”
“While the authors have some sympathy with the Revenue’s attempt to prevent individuals who have become domiciled in the UK from converting non-excluded property to excluded property by adding it to a settlement made when they were not so domiciled, they are far from convinced that the Revenue’s approach, which would seem strange to the mind of a Chancery lawyer, is correct. If the Revenue’s view is correct, or perhaps more pertinently, if one is concerned that it may be correct, consideration could be given in a case in which the abovementioned settlor had an interest in possession in the settlement to his gifting property to an underlying company wholly owned by the settlement…. ….the corollary to the Revenue’s view is presumably that property added by a person to a settlement when he is not domiciled in the UK is excluded property even though he was domiciled in the UK when he created the settlement. Since the authors are not convinced that the Revenue’s view is correct they would advise emigrants from the UK to create new settlements rather than add property to existing settlements.” (3) This seems to be advising practitioners on the basis that HMRC’s view was wrong. The above paragraphs remained unchanged in subsequent editions through to the seventh edition published in 2017 when the authors were Aparna Nathan (now KC) and Marika Lemos both well respected barristers at Devereux Chambers writing with Withers LLP. That edition at 32-59 contained the same passage as above and the authors also referred to the High Court decision in Barclays, noting that despite their view stated above that decision provides support for HMRC’s position but they still concluded that HMRC were not correct. (4) The 4th edition of Kessler published in 2005 set out at length (at 26-11 onwards) the reasons why HMRC’s view was not correct (citing Rysaffe) and concluded that it may take litigation before HMRC would amend their published stance and that if Kessler’s view was right then HMRC would have the worst of all worlds. He also notes at 26.12.1 that where a trust was created when the settlor was non-domiciled but the settlor became domiciled and then gave property to a company owned by the trust “then HMRC’s argument does not run at all. The shares in the company (if not UK situate) must be and remain excluded property.”
“it might take litigation before HMRC amend their published stance on this issue but I think they would be advised not to fight. Until the point is clear, trustees should follow this advice in RI 166” [to keep additions separate when made after the settlor became domiciled]. (5) Chamberlain in 2007 quote extensively from the HMRC Manual from 22.20 onwards, discuss the HMRC examples given and the merits of the stated view and then address practical tax planning ideas: (a) The authors note at footnote 49 that Dymond expressed the view that additions should be regarded as part of a single settlement and that the contrary view is not compatible with FA 1977 which, unlike s 48, clearly distinguished between the time when a settlement was made and the time when the added property was settled, at least in the context of excluded property. One of the consultant editors of Dymond at that time was a former member of the Capital Taxes Office, Mr Roy Greenfield. (b) It is pointed out at para 22.26 that although it is common sense to follow the HMRC guidance where possible, “in the light of the Rysaffe decision and the legislation there is a strong argument that additions made after the settlor is domiciled become excluded property”
“these points are not determined and there is no specific provision requiring additions to a settlement to be treated as being comprised in either a separate settlement or the original settlement.”
“to the best of my knowledge as cited above from discussions with other barristers such as Chris Whitehouse, that interpretation was not generally considered to be correct. However, in practical terms once the settlor had become deemed domiciled an entry charge could not easily be avoided particularly after March 2006 and therefore such additions were only made in limited circumstances.”
“ why would you wait until after you became deemed domiciled to settle your assets when you knew that if you put them in before you became deemed domiciled you had this incredible tax break, where you could benefit from the assets forevermore and never be taxed on your death and…it would be unusual to think I will just put a pilot trust up and then I will wait until I am deemed domiciled before I am settling the assets. You would want to get as much as possible in before you were deemed domiciled.” (2) After 1997 one would have been unwise to advise a client to do that, because it was going against the stated view. It did not mean that one necessarily agreed with their view, but one would obviously always do the safest thing for the client. There is a very large difference between the position before and after 2006; after 2006 the entry charge really is quite an issue although it was not just tax considerations which lead to clients choosing a trust or what type of trust to have. People do not set up trusts and incur an entry charge; they will probably end up doing other sorts of planning, like family investment companies or will wait and leave assets to their spouse in the will. She had come across only one client who was prepared to incur an entry charge who was not a foreign domiciled person. (3) Before 2006 interest in possession trusts were much more popular for UK people. For non-domiciled persons, the choice of type of trust depended on a number of factors. When advising clients one would balance a number of factors. If, before 2006, a client had a QIIP and had become deemed domiciled and was going to leave the country but wanted IHT protection in the meantime there was no reason not to add property. There would be no downside in doing that, potentially quite a lot of upside and no reporting is required. That indeed is what she would have and did advise a client to do. After 2006 it was simply not possible to do that due to the entry charge. She agreed that a settlor could add property to an overseas company which is in a QIIP which would in effect then become excluded property. However, after 2006 if a client did not have an already existing QIIP, short of using the company route which had its own problems (as set out in Trust Taxation), in effect there was nothing the client could do; people would not have wanted to incur up to a 25% charge. Most important non-domiciled persons do not have foreign assets that qualify for reliefs such as business property relief. If it is UK property, they could sell it and take the proceeds offshore, and argue it is excluded property but she never came across a client who had such a property that they wanted to settle. People often want to hang on to such property until death, because they get the CGT uplift then. Advising clients is a mixture of balancing upsides and downsides. (4) It was put to her that in the 4th Edition of McCutcheon and in Kessler it was stated that consideration could be given to using the company route. She said: (a) As regards the position before 2006, she only advised one client to put his assets directly into an existing QIIP. She did not use a company device partly because she thought it was artificial. She did not know that structure was accepted by HMRC. She did not think it was necessary to use that route because her view was that added property became excluded property and there was no entry charge prior to 2006. The company route is quite complicated. Technically there is a reservation of benefit whilst the property is in the company and one cannot dividend the money out because it goes back to the settlor as the life tenant. So one has to extract it by way of a buyback or a liquidation of the company and that may not suit the trustees for other reasons. So that was not something she advised people to do before 2006. (b) After 2006 one used a company for a slightly different reason. The legislation then said that there was no QIIP if one newly settled property. However, if a settlor had a QIIP and there was a company already in the trust, the settlor could add value to the company without affecting the QIIP status and triggering an entry charge. That was as much discussed in the context of domiciled persons as non-domiciled persons. She did not know that HMRC basically accepted that anomaly. (c) She thought Kessler must be referring to a company held in an existing QIIP because a transfer to a company owned by any other trust would be a chargeable transfer. So in that case there would be the same problem of an entry charge. So it would not be a very common scenario after 2006, but it would and did occur. (d) She added that the idea that a settlor can add value to a QIIP without prejudicing its status as such was something that is discussed at great length in Chamberlain and was something: “we had many debates with the Revenue about and we do talk a lot in the Trust Taxation book about preserving your qualifying interest in possession status, because obviously it comes up in a very practical context…how to include property, is it still subject to a qualifying interest in possession trust? We were trying to solve those problems in 2006 when we were talking about this.” (5) She was asked if she shared Kessler’s view that the stated view leads to a more sensible result. She said she thought that the whole excluded property regime is absolutely crazy and there are lots of anomalies in it. The changes in the new legislation show that it is quite difficult to get to a sensible result; that still does not really solve the problem. The sensible result is not to have a non-domiciled excluded property regime, but if there is one, there are always going to be anomalies in it and this is not a particularly striking anomaly - there are lots more worse anomalies in the foreign domiciled regime than this one. She did not really think the stated view gives a more sensible result. (6) It was put to her that Kessler also posits the settlor creating a trust when domiciled and adding property to it when non-domiciled and stated: “On my view, none of the property is excluded property. However, HMRC must abide by their statement (at least until it is officially and publicly withdrawn with appropriate transitional relief) and accept the added property may be excluded property! Thus, the consequence of their statement (if my view is right) is that HMRC have the worst of both worlds. Of course, a well advised settlor will not find himself in this situation, but it does arise from time to time by accident.”
“For similar reasons, a settlor who subsequently becomes UK domiciled should avoid adding assets to the settlement.”
“The second test at the time the settlement was made might suggest an individual could set up a trust whilst non-domiciled but add further funds at the time when he is UK domiciled. This is not HMRC’s interpretation”
“look, create a pilot trust, because then when you are in a position to or if you become wealthy in the future, which you hope to do, then you can stick your assets in at that stage and they will be excluded property”
“We wouldn’t have advised the client to add, because we don’t think it would have been excluded property”
“The received wisdom held the sector was poised to fall” and “Teachers remained locked in on received ideas about poetry”
“there is no specific provision requiring additions to a settlement to be treated as being comprised in either a separate settlement or the original settlement”, (iii) Tolley records the stated view and says: “This interpretation is open to question although it has not so far been challenged in any appeal”, (iv) see the comments of McCutcheon set out in Ms Chamberlain’s evidence, (v) Chamberlain makes the comments HMRC cite above and also note in the summary that, in light of Rysaffe and the legislation, there is a strong argument that additions of property may be excluded property, (vi) Clarke states that although “HMRC’s view has the attraction of logic, it is very difficult to support as a matter of construction” and points to Rysaffe as pointing against the stated view and notes two further arguments against it, (vii) Hutton states the following: “To gain the protection of section 48(3) it is of course essential that the trust is made before the settlor becomes actually or deemed UK domiciled. Some advisers, but not the authors, take the view that a pilot trust can safely be established with the substantive funds added later even at a time when the settlors become deemed or actual UK domiciled.”
“it is property that is excluded, not the trust, provided the settlor was non-domiciled when he or she added the property…”