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 trusts, which in alternating years realised gains and allowed a benefit to be taken.
Held: The Section caught the extraction of value in any form for the benefit of the settlor or his spouse without introducing an undesirable degree of overkill. A chargeable gain had accrued to the Trustees on the share sale, and the settlor had divested himself of all interest in the property at the relevant time. The revenue contended that he was to be regarded as having a benefit derived form the assets, even though in the alternate trust. Under trust law the second settlement served as a vehicle to receive and continue the act of bounty effected by the first settlement, with the rule against perpetuities acting as ‘a sort of umbilical cord’ between the two. The taxpayer had failed to establish that the proceeds when taken were not derived from the assets in the linked trusts, and the gains were to be taxed at his, higher rate of tax.
Lord Steyn Lord Hoffmann Lord Millett Lord Rodger of Earlsferry Lord Walker of Gestingthorpe
[2005] UKHL 5, Times 01-Feb-2005, [2005] 1 All ER 827
Bailii, House of Lords
Taxation of Chargeable Gains Act 1992 77(1)
England and Wales
Citing:
Cited – Roome v Edwards HL 5-Feb-1981
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 . .
Appeal from – Trennery v West (HM Inspector of Taxes) and Related Appeals CA 18-Dec-2003
. .
Cited – In Re Pilkington’s Will Trusts; Pilkington v Inland Revenue Commissioners HL 8-Oct-1962
The trustees proposed establishing a new trust in respect of the share of an estate to which an infant beneficiary had a contingent entitlement. A portion of the trust fund would be allocated to the new trust.
Held: This was a lawful exercise . .
Cited – Craven v White HL 1988
The inland revenue claimed that several transactions had been arranged for the predominant purpose of obtaining a tax advantage, and that accordingly they should be disregarded. Lord Oliver: ‘[T]he transactions which, in each appeal, the Inland . .
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 – Inland Revenue Commissioners v Duke of Westminster HL 7-May-1935
The Duke’s gardener was paid weekly, but to reduce tax, his solicitors drew up a deed in which it was said that the earnings were not really wages, but were an annual payment payable by weekly instalments.
Held: To find out what the true . .
Cited – Leedale (Inspector of Taxes) v Lewis HL 14-Oct-1982
The statute called for the apportionment of capital gains made by non-resident trustees where resident beneficiaries had ‘interests’ in the settled property, with the apportionment to be made ‘in such manner as is just and reasonable between’ them. . .
At first instance – West and Others (HM Inspector of Taxes) v Trennery and others ChD 1-Apr-2003
The taxpayers had adopted the ‘flip-flop’ scheme to reduce their Capital Gains Tax liability.
Held: The section was intended to prevent relief where the settlor retained some direct or indirect benefit. Derived property was defined to include . .
Lists of cited by and citing cases may be incomplete.
Capital Gains Tax
Leading Case
Updated: 01 November 2021; Ref: scu.222053