Banks v Commissioners for HMRC [2021] WTLR 1193

WTLR Issue: Winter 2021 #185





Between 7 October 2014 and 31 March 2015, the appellant (T) made 14 political donations to the United Kingdom Independence Party (UKIP) and its youth wing known as Young Independence. The donations had a total value of £976,781.38. Some were made in T’s personal capacity, others through a company of which T was indirectly sole beneficial owner.

UKIP was a limited company registered as a political party. In the 2014 European Parliamentary Election, UKIP won 24 seats and 26.6% of the UK popular vote, making it the most successful UK party on both measures. However it was less successful in elections to the House of Commons. In 2014, it won its first seats in the House of Commons, both through by elections. In the 2015 general election, it won a single seat.

At the time of the donations, UKIP therefore had no MPs who had been elected in the 2010 general election. All but one of the donations post-dated the election of their first MP. All but four were made while they had two MPs.

It was common ground that the donations constituted transfers of value for IHT purposes. It was not disputed that, leaving aside the Human Rights Act 1998, as a matter of construction the donations did not qualify for exemption under s24 Inheritance Tax Act 1984 (IHTA). This was because at the 2010 general election no member of UKIP was elected to the House of Commons.

HMRC issued a determination to the effect that the donations were chargeable transfers under s2 IHTA. T appealed to the First-tier Tribunal (FtT), arguing inter alia that the application of s24 IHTA in its terms breached his and alternatively UKIP’s human rights, and that s24 IHTA should therefore be construed to secure compatibility with those rights in accordance with s3 Human Rights Act 1998 (HRA).

The FtT dismissed the appeal, holding that T had established a case on the basis of indirect discrimination against him under Art 14 European Convention on Human Rights (ECHR) on the ground of his political opinions and that the defence of justification failed, but that s24 IHTA could not be construed in an ECHR-compliant manner.

T appealed to the Upper Tribunal (UT) and HMRC relied on a respondent’s notice challenging the FtT’s conclusion that there had been discrimination against T in breach of Art 14 ECHR. The UT dismissed T’s appeal. The UT found that there had not been a breach of Arts 10, 11, and 14 or A1P1 ECHR, that there had not been a breach of UKIP’s ECHR rights which could be relied upon by T, and that s24 IHTA could not be interpreted under s3 HRA as contended by T. T appealed to the Court of Appeal.

Held (dismissing the appeal):

It was no longer tenable to argue that s24 IHTA should be more readily held to infringe T’s human rights by reason of its long pre-dating the HRA and not having been reviewed by Parliament to test its compatibility with the ECHR (R (SC) v Secretary of State for Work and Pensions [2021] followed).

The only statutory aim which could safely be inferred from the terms of s24 IHTA was the provision of a fiscal incentive for the funding of political parties which had achieved a minimum level of representation in the UK Parliament at Westminster, and thereby to promote the functioning of Parliamentary democracy in the UK. The court also agreed with the UT’s more specific statement of the aim, namely ‘to provide tax relief on donations to political parties that are participating in Parliamentary democracy by being represented in the House of Commons’. There was no evidence that the avoidance of abuse was a material factor in the framing of the section.

There was no causal link between T’s political views and the failure of his donations to satisfy s24 IHTA. Section 24 IHTA applies to political parties all across the political spectrum. The donor’s political views are irrelevant to the question of whether the donation qualifies for the relief. Neither were the qualifying conditions proxies for discrimination since they operated in exactly the same way to all political parties. The criteria for exemption had nothing to do with the donor’s political views except in the trivial ‘but for’ sense that in the absence of a donation to a political party by a donor within the charge to IHT, no question of exemption could arise. There was therefore no direct discrimination contrary to Art 14 ECHR (R (SC), R v Chief Constable of South Yorkshire Police, ex parte LS [2004], R (Stott) v Secretary of State for Justice [2018]. Guberina v Croatia [2016], Essop v Home Office [2017], Biao v Denmark [2016], and James v Eastleigh Borough Council [1990] considered). The lack of causal link was also inconsistent with any indirect discrimination (R (SC), Biao, and R (Delve) v Secretary of State for Work and Pensions [2020] considered). In addition it could not be inferred that the requirements of s24 IHTA had a particular disproportionate effect on supporters of UKIP in general or T in particular as compared with their impact on supporters of any other political party which did not qualify for exemption at the material time. There was therefore no breach of Art 14 ECHR read with A1P1 on the basis that T was discriminated against on the ground of his political opinion.

Status as ‘a supporter of a party without an elected MP’ did not breach the independent existence condition and so can be an ‘other status’ within the meaning of Art 14 ECHR (R v Docherty [2016], R (Stott), Simawi v London Borough of Haringey [2019], and R (SC) v Secretary of State for Work and Pensions [2019] considered). Section 24(2) IHTA therefore did discriminate against T directly on the basis that he was a supporter of a party that secured no seats in the House of Commons at the 2010 general election. This discrimination fell within the scope of Art 14 ECHR read together with A1P1.

The tax charge under s24 IHTA is neutral in its impact on political parties and donors of all political views and the criteria for exemption had nothing to do with the political views of the donor but are instead directed to the level of representation at Westminster obtained by the party at the preceding general election. It could not simply be assumed that criteria of that nature would have a deterrent effect – evidence would be needed to establish any adverse impact on T’s Art 10 or Art 11 rights (Lingens v Austria [1986], Ezelin v France [1991], and Parti Nationaliste Basque v France [2007] distinguished). Similarly, there was no evidence that the charge to IHT had any impact on donors to UKIP or on UKIP’s finances, or that IHT was taken into account by T or any other donor to UKIP. T’s Art 14 claim therefore did not fall within the ambit of Arts 10 or 11 ECHR.

The only relevant respect in which s24 IHTA discriminated against T was therefore on the ground of his status as a donor supporting a party without an MP elected at the last general election before the donations were made, which fell within Art 14 ECHR read with A1PR. Because it was direct discrimination, it was the discriminatory effect of s24 IHTA on T and other donors to parties without an MP which had to be justified, not the impugned measure itself (A L (Serbia) v Secretary of State for the Home Department [2008] referred to).

In light of the guidance in R (SC), HMRC had discharged the burden of establishing justification (Stec v United Kingdom [2006] also referred to). The exemption in s24 IHTA was contained in primary legislation which had remained in materially the same form for over 45 years. While this was a case where no safe conclusions could be drawn about the aim of the exemption other than the terms of the legislation itself, there was nothing unusual about this, and T could not draw support from the fact that it dated from an era when no consideration was given by Parliament to the differential impact of the legislation on the Convention rights of donors. The will of Parliament remained the starting point. Section 24 IHTA formed an integral part of the structure of a major piece of tax legislation (an area in which a wide margin was usually allowed to the state) and its terms did not engage any ‘suspect’ grounds which might justify requiring the state to give ‘very weighty reasons’ in support of it.

The funding of political parties was a sensitive subject on which widely differing views may be held by supporters of all parties or none. The question was essentially a political one upon which the courts had neither the equipment nor the democratic credentials to rule. Interference by the courts in a case of this type would cross the boundaries which need to be maintained between legality and the political process. The position might have been different if there was some obvious structural flaw or irrationality in the legislation, but this was not the case.

JUDGMENT HENDERSON LJ: Introduction and background [1] Between 7 October 2014 and 31 March 2015, the appellant, Mr Arron Banks, made a series of 14 political donations with a total value of £976,781.38. Some of the donations were made by him in his personal capacity, and others through a company of which he was indirectly …
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Counsel Details

Jason Coppel QC (11KBW, 11 King’s Bench Walk, Temple, London, EC4Y 7EQ, tel 020 7632 8500, email and Imran Afzal (Field Court Chambers, 5 Field Court, Gray’s Inn, London WC1R 5EF, UK, tel 020 7405 6114, email, instructed by Kingsley Napley LLP (20 Bonhill St, London EC2A 4DN, tel 020 7814 1200, email for the appellant.

Sir James Eadie QC (Blackstone Chambers, 1 Garden Court, Temple, London EC4Y 9BJ, tel 020 7583 1770, email and Mr Christopher Stone (Devereux Chambers, Devereux Ct, Temple, London WC2R 3JH, tel 020 7353 7534, email, instructed by the General Counsel and Solicitor for HMRC (HM Revenue and Customs Solicitor’s Office, 14 Westfield Avenue, Stratford, London E20 1HZ) for the respondents.

Cases Referenced

  • A L (Serbia) v Secretary of State for the Home Department [2008] UKHL 42; [2008] 1 WLR 1434
  • Biao v Denmark [2016] ECHR 455; [2017] 64 EHRR 1
  • Blair v Duncan [1901] UKLawRpAC 2; [1902] AC 37
  • Bowman v Secular Society Ltd [1917] AC 406
  • Bull & anor v Hall & anor [2013] UKSC 73; [2013] 1 WLR 3741
  • Carson & ors v United Kingdom [2010] ECHR 338; (2010) 51 EHRR 13
  • Essop & ors v Home Office [2017] UKSC 27; [2017] 1 WLR 1343
  • Ezelin v France [1991] ECHR 29; (1992) 14 EHRR 362
  • Guberina v Croatia [2016] ECHR 287; (2018) 66 EHRR 11
  • Humphreys v Revenue and Customs Commissioners [2012] UKSC 18; [2012] 1 WLR 1545
  • James v Eastleigh Borough Council [1990] UKHL 6; [1990] 2 AC 751
  • Lingens v Austria [1986] ECHR 7; (1986) 8 EHRR 407
  • Parti Nationaliste Basque v France [2007] ECHR 5561; (2008) 47 EHRR 47
  • R (Countryside Alliance & ors) v Attorney General & anr [2007] UKHL 52; [2008] AC 719
  • R (Delve & anr) v Secretary of State for Work and Pensions [2020] EWCA Civ 1199
  • R (SC & ors) v Secretary of State for Work and Pensions [2019] EWCA Civ 615; [2019] 1 WLR 5687
  • R (SC & ors) v Secretary of State for Work and Pensions & ors [2021] UKSC 26
  • R (Stott) v Secretary of State for Justice [2018] UKSC 59
  • R (Ullah) v Special Adjudicator [2004] UKHL 26; [2004] 2 AC 323
  • R v Chief Constable of South Yorkshire Police, ex parte LS [2004] UKHL 39; [2004] 1 WLR 2196
  • R v Director of Public Prosecutions, ex parte Kebeline & ors [1999] UKHL 43; [2000] 2 AC 326
  • R v Docherty [2016] UKSC 62; [2017] 1 WLR 181
  • Simawi v London Borough of Haringey [2019] EWCA Civ 1770
  • Stec & ors v United Kingdom [2006] ECHR 393; (2006) 43 EHHR 47

Legislation Referenced

  • Bill of Rights 1688, Art 9
  • Customs and Inland Revenue Act 1881, s38
  • European Convention on Human Rights, Arts 10, 11 and 14 and Art 1 Protocol 1
  • Finance Act 1968
  • Finance Act 1975, Sch 6 paras 10-13
  • Housing Act 1985, ss87 and 88
  • Human Rights Act 1998
  • Inheritance Tax Act 1984, ss2, 7, 24 and 94 and Sch 1
  • Political Parties, Elections and Referendums Act 2000, ss22, 23 and 28 and Sch 23