Routier & anr v HMRC Neutral citation: [2014] EWHC 3010 (Ch)

Analysis

This was an appeal from notices of determination by HMRC which held that dispositions in the will of Beryl Coulter (the deceased) did not fall within s23 of the Inheritance Tax Act 1984, and were therefore not exempt from inheritance tax. The deceased died on 9 October 2007 domiciled in Jersey. Her final will was dated 1 October 2004 and probate was granted in the probate division of the Royal Court of Jersey on 25 October 2007. The will made several legacies totalling £210,000 and the residue passed to her executors to be held on the terms of the Coulter Trust for the purpose of the provision of homes for the elderly in the Parish of St Ouen. In default, clause 3 provided for the income and capital to be distributed to Jersey Hospice Care at the Coulter Trustees’ discretion.

HMRC refused to accept that the gift of the residue to the Coulter Trust was exempt from inheritance tax. On 28 April 2009, the appellants entered into a deed of variation with representatives of the parish and of Jersey Hospice Care replacing the gift of residue with an absolute gift to Jersey Hospice Care of £10,000 and an absolute gift of the residue to the appellants for the purposes of the construction of homes for the elderly of the parish. The deed of variation further provided that the trustees should have the power to vary the terms of the Coulter Trust in so far as might be necessary in order to comply with any legal requirement in Jersey or elsewhere in order to ensure that the Coulter Trust was held on trust for charitable purposes only, under s23 of the Inheritance Tax Act (IHTA) 1984. In exercise of that power, a second deed of variation was executed in October 2010, amending clause 18 of the will to replace the reference to Jersey law with a reference to the law of England and Wales. The Coulter Trust was registered as a charity by the UK Charity Commission on 14 February 2011.

The matter concerned the construction of s23 IHTA 1984 which provides as follows:

1. ‘(1) Transfers of value are exempt to the extent that the values transferred by them are attributable to property which is given to charities

[…]

1. (6) For the purposes of this section property is given to charities if it becomes the property of charities or is held on trust for charitable purposes only, and “donor” shall be construed accordingly.’

In conjunction with the definition of ‘charity’ in s989 of the Income Tax Act 2007, subsection (6) of s23 IHTA could be read as having two limbs:

1. i) the first limb exempts a transfer if the property becomes the property of any body of persons or trust established for charitable purposes only.
2. ii) The second limb exempts the transfer if the property is held on trust for charitable purposes only.

The parties were agreed that the objects of the Coulter Trust and of Jersey Hospice Care were exclusively UK law charitable purposes. Second, they agreed that no instrument varying the will was made by the appellants between the deed of variation and the proper law variation. Third, it was agreed that s142 IHTA did not apply to give the proper law variation retrospective effect. The issue between the parties was whether the gift to the Coulter Trust fell within s23(1) IHTA because it fell within the second limb of s23(6) IHTA as a gift held on trust for charitable purposes only.

The appellants argued that the plain words of subsection (6) indicated that all that was needed for the exemption to apply was that there was a trust, and that its purposes were exclusively UK law charitable purposes. HMRC contended that there was an implied requirement in subsection (6) that the body of persons or trust was governed by the law of some part of the United Kingdom. As the Coulter trust was governed by Jersey law, they contended that it therefore did not qualify as a ‘trust for charitable purposes only’.

Held:

1. 1) The reasoning of the Court of Appeal in Camille and Henry Dreyfus Foundation Inc v Inland Revenue Commissioners [1954] 1 Ch 672 applied to the wording of s23 IHTA. The Coulter Trust did not qualify for exemption under either limb of subsection (6) because it was not governed by UK law but by Jersey law.
2. 2) If the appellants were right in their construction of s23 IHTA, then trusts governed by any non-UK legal system potentially benefit from the exemption.
3. 3) The application of other UK law concepts to overseas bodies in the IHTA was not sufficient to override the principle that in using the words in s23 IHTA, parliament must be taken to have been aware of the interpretation that had been given to them in this context by the Dreyfus decision and to have intended to bring forward that meaning into the present legislation.
4. 4) The fact that some of the contextual indicators relied on by the Court of Appeal in support of the UK link had been omitted from the wording of the statute did not mean that the conclusion reached by the Court of Appeal and House of Lords in Dreyfus no longer applied.
5. 5) The appellants had advanced no good reason as to why Parliament should have intended the second limb of s23 IHTA to be broader than the first.
6. 6) The clause in the deed of variation was the wording of a power and not a duty and did not alter the terms of the will trusts. The appellants could have taken steps to remedy the problem identified by HMRC but they did not do so. The equitable maxim that ‘equity regards as done that which ought to be done’ could not make good that omission.
7. 7) The expression ‘held on trust for charitable purposes’ in s23(6) IHTA required not only that charitable purposes be UK law charitable law purposes but that the relevant trust must be subject to the jurisdiction of the UK courts as well.