Although transactions were integrated as part of a preconceived scheme which was commercially marketed and that had no other conceivable purpose than that of saving surtax, the construction of the statute compelled the acceptance of a fiscal result which accorded very ill with the true ‘substance’ of the transactions taken as a whole. There was nothing illegal about the scheme and it was entitled to a fair, if not necessarily benevolent, consideration by the court. Purchased annuities are in principle captured by schedule D of the Income Tax Acts. Lord Wilberforce considered it was not possible to read into the definition an exception in favour of commercial transactions but that it was necessary to consider the scope of the words of the definition: ‘If it appears, on the one hand, that a completely literal reading of the relevant words would so widely extend the reach of the section that no agreement of whatever character fell outside it, but that, on the other hand, a legislative purpose may be discerned, of a more limited character, which Parliament can reasonably be supposed to have intended, and that the words used fairly admit of such a meaning as to give effect to that purpose, it would be legitimate, indeed necessary, for the courts to adopt such meaning.’ and ‘. . . it can, I think, fairly be seen that all of these provisions…have a common character. They are designed to bring within the net of taxation dispositions of various kinds, in favour of a settlor’s spouse, or children, or of charities, cases, in popular terminology, in which a taxpayer gives away a portion of his income, or of his assets, to such persons, or for such periods, or subject to such conditions, that Parliament considers it right to continue to treat such income, or income of the assets, as still the settlor’s income. These sections, in other words, though drafted in wide, and increasingly wider language, are nevertheless dealing with a limited field – one far narrower than the field of the totality of dispositions, or arrangements, or agreements, which a man may make in the course of his life. Is there then any common description which can be applied to this.’ As to Bulmer v IRC: ‘My Lords, I think that in doing so the learned judge was well within the limits of permissible interpretation, and that with the ‘element of bounty’ test we have a definition which is in agreement with the intention of Parliament as revealed through the whole miniature code . . .’
Lord Fraser of Tullybelton said that the definition of settlement applied only where there was an element of bounty because the word ‘settlement’, even allowing for its extended definition was used throughout the relevant Part ‘with a flavour of donation or bounty’.
Lord Wilberforce, Lord Fraser of Tullybelton
[1979] 3 All ER 775, [1980] AC 896, [1979] UKHL TC – 54 – 1, [1979] STC 793, [1979] TR 339, [1979] 3 WLR 689, 54 TC 1
Bailii
England and Wales
Citing:
Cited – Bulmer v Inland Revenue Commissioners 1967
Shareholders fearing a takeover sold their shares to another company’s subsidiary at below market value, the balance of value outstanding on an interest free loan. A commercial loan was used to buy further shares. When the loan was fully repaid the . .
Cited by:
Applied – W T Ramsay Ltd v Inland Revenue Commissioners HL 12-Mar-1981
The taxpayers used schemes to create allowable losses, and now appealed assessment to tax. The schemes involved a series of transactions none of which were a sham, but which had the effect of cancelling each other out.
Held: If the true nature . .
Cited – Commissioners of Inland Revenue v McGuckian HL 21-May-1997
Steps which had been inserted into a commercial transaction, but which had no purpose other than the saving of tax are to be disregarded when assessing the tax effect of the scheme. The modern approach to statutory construction is to have regard to . .
Cited – Jones v Michael Vincent Garnett (HM Inspector of Taxes) CA 15-Dec-2005
Husband and wife had been shareholders in a company, the wife being recorded as company secretary. The company paid dividenceds to both. The husband appealed a decision that the payment to his wife was by way of a settlement and was taxable in his . .
Cited – Chinn v Hochstrasser (Inspector of Taxes) HL 11-Dec-1980
The House considered the meaning of the word ‘bounty’ in an income tax context, where it had been used by the courts: ‘My Lords, I would venture to point out that the word ‘bounty’ appears nowhere in the statute. It is a judicial gloss upon the . .
Cited – Jones v Garnett (Her Majesty’s Inspector of Taxes) HL 25-Jul-2007
The husband and wife had each owned a share in a company which sold the services of the husband. The Revenue claimed that the payment of dividends to the wife was a settlement.
Held: The Revenue failed. The share had been transferred to the . .
Cited – Barlow Clowes International Ltd and Others v Henwood CA 23-May-2008
The receiver appealed against an order finding that the debtor petitioner was not domiciled here when the order was made. The debtor had a domicile of origin in England, but later acquired on in the Isle of Man. He then acquired a home in Mauritius . .
Criticised – Plummer v Inland Revenue Commissioners ChD 1987
The taxpayer had a domicile of origin in England but her family had moved to Guernsey. She remained in England principally for the purpose of completing her education. She intended when she had finished her training and had some experience working . .
Lists of cited by and citing cases may be incomplete.
Taxes Management, Income Tax
Leading Case
Updated: 01 November 2021; Ref: scu.181332