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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Inland Revenue v Eversden & Anor [2002] EWHC 1360 (Ch) (10 July 2002) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2002/1360.html Cite as: [2002] EWHC 1360 (Ch), [2002] WTLR 1013, [2002] STC 1109, [2002] BTC 8035, [2002] NPC 96, [2002] STI 1008 |
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CHANCERY DIVISION
Strand, London, WC2A 2LL | ||
B e f o r e :
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THE COMMISSIONERS OF INLAND REVENUE | Appellants | |
- and - | ||
(1) ELIZABETH VALERIE EVERSDEN (2) IAN DAVID EVERSDEN (as Executors of the Will of Margaret Hunter Greenstock deceased) | Respondents |
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Mr Andrew Thornhill QC and Mr Jeremy Woolf (instructed by Triggs Wilkinson Mann, 7 Queens Road, Wimbledon, London SW19 2NG) for the Respondents
Hearing dates : 26th & 27th June 2002
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Crown Copyright ©
Mr Justice Lightman:
INTRODUCTION
FACTS
THE ISSUES
STATUTORY SCHEME
“102—(1) Subject to subsections (5) and (6) below, this section applies where, on or after 18th March 1986, an individual disposes of any property by way of gift and either—
(a) possession and enjoyment of the property is not bona fide assumed by the donee at or before the beginning of the relevant period; or
(b) at any time in the relevant period the property is not enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor and of any benefit to him by contract or otherwise;
and in this section ‘the relevant period’ means a period ending on the date of the donor’s death and beginning seven years before that date or, if it is later, on the date of the gift.
(2) If and so long as—
(a) possession and enjoyment of any property is not bona fide assumed as mentioned in subsection (1)(a) above, or
(b) any property is not enjoyed as mentioned in subsection (1)(b) above,
the property is referred to (in relation to the gift and the donor) as property subject to a reservation.
(3) If, immediately before the death of the donor, there is any property which, in relation to him, is property subject to a reservation then, to the extent that the property would not, apart from this section, form part of the donor’s estate immediately before his death, that property shall be treated for the purposes of the 1984 Act as property to which he was beneficially entitled immediately before his death.
(4) If, at a time before the end of the relevant period, any property ceases to be property subject to a reservation, the donor shall be treated for the purposes of the 1984 Act as having at that time made a disposition of the property by a disposition which is a potentially exempt transfer.
(5) This section does not apply if or, as the case may be, to the extent that the disposal of property by way of gift is an exempt transfer by virtue of any of the following provisions of Part II of the 1984 Act,—
(a) section 18 (transfers between spouses);
(b) section 20 (small gifts);
(c) section 22 (gifts in consideration of marriage);
(d) section 23 (gifts to charities);
(e) section 24 (gifts to political parties);
(f) section 25 (gifts for national purposes, etc.);
(g) section 26 (gifts for public benefit);
(h) section 27 (maintenance funds for historic buildings);
and
(i) section 28 (employee trusts).”
DISCRETIONARY TRUSTS
“No doubt in a certain sense a beneficiary under a discretionary trust has an ‘interest’: the nature of it may, sufficiently for the purpose be spelt out by saying that he has a right to be considered as a potential recipient of benefit by the trustees and a right to have his interest protected by a court of equity. Certainly that is so, and when it is said that he has a right to have the trustees exercise their discretion ‘fairly’ or ‘reasonably’ or ‘properly’ that indicates clearly enough that some objective consideration (not stated explicitly in declaring the discretionary trust, but latent in it) must be applied by the trustees and that the right is more than a mere spes.”
“But then the respondents founded on two decisions on the meaning of the word ‘interest’ in a different provision which was obviously passed to deal with a different problem. The Customs and Inland Revenue Act, 1881, required certain property to be brought in although it had ceased to belong to the deceased at the date of his death. This included the case where a settlor in making a settlement had reserved an interest in the settled property. In Attorney-General v. Heywood the settlor had provided that the trustees had a discretion to apply the trust income for the benefit of himself his wife and children or any one or more of them. It was, I think, rightly decided that he had reserved an interest within the meaning of that provision. It is always proper to construe an ambiguous word or phrase in light of the mischief which the provision is obviously designed to prevent, and in light of the reasonableness of the consequences which follow from giving it a particular construction. Here, if ‘interest’ were given a narrow or technical meaning, it would be very easy to defeat the obvious purpose of the provision by setting up a discretionary trust and choosing trustees who might be expected to exercise their discretion in favour of the settlor. And, on the other hand, no unreasonable consequences would follow if the word were given a wider meaning so as to include possible benefit that would come to the settlor in a certain event—in the event of the trustees deciding that he should have the whole or part of the income....”
OCCUPATION OF MEADOWS
“(a) - Was the settlor’s occupation of the house the reservation of a benefit?
68. For the Appellants Mr Woolf argued that the rights of the settlor under the trust and her occupation of the property did not amount to a reservation of benefit because she had a 5% share in the house and was entitled to occupy the house for that reason; she did not entrench on the rights of the other beneficiaries. Section 102 permitted a settlor to carve out an interest. He relied upon Ingram at 41j and argued that the gift to the settlement had been subject to the settlor’s 5% interest which gave her the right of occupation and that her right to occupy had never been included in the gift. The trustees and beneficiaries had never at any time acquired the house free of the settlor’s interest. Accordingly any benefits derived by the settlor were not derived from the interests given. He adopted the decision in Oakes at page 76.
...
70. The passage relied upon by Mr Woolf in Oakes at page 76 reads:
‘If a donor reserves to himself a beneficial interest in property and only gives to the donees such beneficial interests as remain after his own reserved interest has been satisfied it is now well established that such reservation of a beneficial interest does not involve any benefit to the donor within the meaning of the section.’
71. Oakes is also authority for the view that the right of residence is not a benefit as it is a right enjoyed by a co-owner of property. Ingram is authority for the view that section 102 does not prevent people from deriving benefit from the object in which they have given away an interest but only when they derive a benefit from that interest.
72. I would therefore conclude that the settlor’s occupation of the house was a right enjoyed by her as a 5% co-owner of the property and that that benefit was not derived from the interest which was given away in the settlement. The evidence was that the settlor had in fact occupied the property alone but there was no evidence that any of the beneficiaries under the settlement had been excluded from joint occupation.”
“(1) A beneficiary who is beneficially entitled to an interest in possession in land subject to a trust of land is entitled by reason of his interest to occupy the land at any time if at that time—
(a) the purpose of the trust includes making the land available for his occupation (or for the occupation of beneficiaries of a class of which he is a member or of beneficiaries in general), or
(b) the land is held by the trustees so as to be so available.”
SECTION 102(5)
“53. The third question arising out of the issue as to whether section 102(5) applied was whether one should consider that date of the settlement or the date of the death of the settlor.
54. Mr Twiddy [for the CIR] argued that one should consider the date of death of the settlor rather than the date of the settlement. Under section 102(1) it was the date of death which defined the relevant period. At the date of the settlement there was no need to consider tax but at the date of the settlor’s death it was necessary to identify if there had been a disposal of property by way of gift with reservation.
55. I agree with Mr Twiddy that the date of the death of a donor establishes the relevant period for the purposes of section 102 and that section 102(3) also refers to the date of death of the donor. However, section 102(5) refers to the disposal of property by way of gift and reflects the same words in section 102(1). If section 102(5) applies then the other provisions of section 102 do not and so the date of death of the settlor will not be relevant. It seems to me that section 102(5) is quite specific and requires a reference only to the disposal of property by way of gift which in this appeal is the creation of the settlement.
56. I conclude therefore that, for the purposes of section 102(5), the relevant date is the date of the settlement.”
CONCLUSION