HL Capital gains tax – Trustees of fund appointed out of main settlement under special powers- – Whether liable for chargeable gain accruing to trustees of unappointed residue – Finance Act 1965, s 25(11) – Sch 10, para 12.
A claim was made for the payment of Capital Gains Tax. It was material to that claim to decide whether the exercise of a power of appointment contained in a settlement gave rise to a settlement separate from the main settlement.
Lord Wilberforce (with whose speech three of the other four Law Lords agreed, Lord Roskill delivering a separate speech) spoke generally: ‘There are a number of obvious indicia which may help to show whether a settlement, or a settlement separate from another settlement, exists. One might expect to find separate and defined property; separate trusts; and separate trustees. One might also expect to find a separate disposition bringing the separate settlement into existence. These indicia may be helpful, but they are not decisive. For example, a single disposition, eg, a will with a single set of trustees, may create what are clearly separate settlements, relating to different properties, in favour of different beneficiaries, and conversely separate trusts may arise in what is clearly a single settlement, e.g. when the settled property is divided into shares. There are so many possible combinations of fact that even where these indicia or some of them are present, the answer may be doubtful, and may depend upon an appreciation of them as a whole.
Since ‘settlement’ and ‘trusts’ are legal terms, which are also used by business men or laymen in a business or practical sense, I think that the question whether a particular set of facts amounts to a settlement should be approached by asking what a person, with knowledge of the legal context of the word under established doctrine and applying this knowledge in a practical and common-sense manner to the facts under examination, would conclude. To take two fairly typical cases. Many settlements contain powers to appoint a part or a proportion of the trust property to beneficiaries: some may also confer power to appoint separate trustees of the property so appointed, or such power may be conferred by law: see Trustee Act 1925, section 37. It is established doctrine that the trusts declared by a document exercising a special power of appointment are to be read into the original settlement: see Muir (or Williams) v Muir [1943] AC 468. If such a power is exercised, whether or not separate trustees are appointed, I do not think that it would be natural for such a person as I have presupposed to say that a separate settlement had been created: still less so if it were found that provisions of the original settlement continued to apply to the appointed fund, or that the appointed fund were liable, in certain events, to fall back into the rest of the settled property. On the other hand, there may be a power to appoint and appropriate a part or portion of the trust property to beneficiaries and to settle it for their benefit. If such a power is exercised, the natural conclusion might be that a separate settlement was created, all the more so if a complete new set of trusts were declared as to the appropriated property, and if it could be said that the trusts of the original settlement ceased to apply to it. There can be many variations on these cases each of which will have to be judged on its facts.’
Lord Wilberforce, Lord Roskill
[1982] AC 279, [1981] UKHL TC – 54 – 359, [1981] UKHL TC – 54 – 359, [1981] 1 All ER 736, 54 TC 359, [1981] 2 WLR 268, [1982] AC 279
Bailii
Trustee Act 1925 37
England and Wales
Cited by:
Cited – Trennery v West (Inspector of Taxes) HL 27-Jan-2005
The House considered the application of the section to ‘flip-flop trusts’. The section allocated liability to charge on gains within a settlement under certain circumstances onto the settlor, and at his rate of tax. Assets were allocated to two . .
Lists of cited by and citing cases may be incomplete.
Capital Gains Tax, Trusts
Leading Case
Updated: 02 November 2021; Ref: scu.222084