Mills (Hayley) v Commissioners of Inland Revenue: HL 12 Feb 1974

Surtax – Settlement – Arrangement – Settlor – Fees for actress’s services paid to company but enuring for her benefit – Actress aged 14 when arrangements made – Settlement with more than one settlor – From whom income originates – Income Tax Act 1952 (15 and 16 Geo. 6 and 1 Eliz. 2, c. 10), ss. 405, 409 and 411.
The taxpayer’s father set out to protect her income from tax. He formed a company (S) and settled the shares on Hayley contingently on attaining the age of 25. Hayley worked through S for five years at a salary. The following year S and Hayley entered into a contract with a film company to render Hayley’s exclusive services for five years for annual sums ranging from $30,000 to $75,000. The profits S were paid by dividend to the trustees of the settlement who accumulated them. Hayley was assessed to surtax on the basis that the overall arrangement was a settlement of which she was a settlor and that she was liable to be assessed on the dividend income accruing to the trustees. The Revenue’s contention was upheld by the Special Commissioners and Goulding J, but failed at the Court of Appeal.
Held: The revenue’s appeal succeeded. Viscount Dilhorne considered that the Special Commissioners had properly concluded that the incorporation of S, the issue of the shares, the making of the settlement, the making of the service agreement were all acts done in furtherance of an integrated scheme planned solely for the benefit of Hayley which was an ‘arrangement’ and therefore a settlement to which the relevant section applied. Hayley had provided funds for the purpose of that settlement so as to be a settlor in respect of it. Referring to Crossland v Hawkins : ‘Similarly, in this case it is, to my mind, taking too narrow a view of the arrangement to conclude that the funds which went to the trustees by way of dividends were just provided by [S]. To do so means shutting one’s eyes to the fact that the source of the dividends was money paid for [Hayley’s] work, and money which but for the arrangement would have been received by her. In my opinion she must be held to have provided funds for the purposes of the ‘settlement’.’

Viscount Dilhorne, Lords Reid, Morris of Borth-y-Gest, Hodson and Salmon
(1974) 49 TC 367, [1974] UKHL TC – 49 – 367, [1975] AC 38, [1974] STC 130, [1974] 2 WLR 325, [1974] 1 All ER 722
Income Tax Act 1952 405 409 411
England and Wales
CitedCrossland v Hawkins CA 1961
The taxpayer, a well known film actor, agreed to work through a company for three years being paid andpound;50 per week. The shares were transferred to his wife and accountant. His father in law set up a andpound;100 settlement for the benefit of . .

Cited by:
CitedJones 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 . .
CitedJones v Garnett (Inspector of Taxes) ChD 28-Apr-2005
The taxpayer worked as an information technology specialist. His earnings were channelled through a limited company. The company paid on part of its income to his wife, with the result that the total tax paid was reduced. The inspector sought to tax . .

Lists of cited by and citing cases may be incomplete.

Income Tax

Leading Case

Updated: 02 November 2021; Ref: scu.236562