Analysis
This appeal concerned whether a disposition in the will of the late Mrs Beryl Coulter (the deceased) is exempt from inheritance tax because it comprises property which is given to charities within the meaning of s23 of the Inheritance Tax Act 1984 (the IHTA). The appellants are the executors of the deceased’s estate.
The deceased died on 9 October 2007. In her will dated 1 October 2007 she left a number of pecuniary legacies. Her residuary estate was held on trust by the executors (the Coulter Trust) for ‘such incorporated body as may be set up by the Parish of St Ouen for the purpose of the provision of homes for the elderly of the Parish’ (the Parish). A default trust provided for the residue to be held for the Jersey Hospice Care. By clause 18 of the will, the law governing the Coulter Trust was that of Jersey.
HMRC did not 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 the Parish and the Jersey Hospice Care. The replacement clause provided for an absolute gift of £10,000 to Jersey Hospice Care and an absolute gift of the residue to the appellants to use for the purpose of the construction of homes for the elderly of the Parish.
The deed of variation contained a further clause that the trustees have the power to vary the terms of the coulter trust as far as necessary to ensure that it complied with s23 IHTA. In 2010 the appellants retired as trustees and appointed Thomas Eggar Trust Corporation Ltd as the sole trustee. That new trustee amended the will to replace the reference to Jersey law with a reference to the law of England and Wales (the Proper Law Variation) pursuant to the power in the earlier deed of variation. The Coulter Trust was registered as a charity by the UK Charity Commission on 14 February 2011.
It was common ground between the parties that the objects of the Coulter Trust and of Jersey Hospice Care are exclusively UK law charitable purposes. The issue between the parties was whether the gift to the Coulter Trust is exempt under s23(1) IHTA. This in turn depends on whether it falls within either limb of s23(6) IHTA. The first limb exempts a transfer if the property becomes the property of any body of persons or trust established for charitable purposes only and the second limb exempts the transfer if the property is held on trust for charitable purposes only.
The appellants argued that the Coulter Trust fell within the second limb of s23(6), on the basis that all that was required was that there is a trust and that the trust’s purposes are exclusively UK law charitable purposes. HMRC accepted both of these propositions but argued that there is an implied requirement that both limbs of subsection (6), namely the property of charities (first limb) or trust (second limb), are governed by the law of some part of the UK (‘the UK-link’). The appellants accepted the UK-link was necessary in respect of the first limb, but not the second limb.
Held:
- 1) The Coulter Trust does not qualify for exemption under either limb of subsection (6) because it is not governed by UK law but by Jersey law. The reasoning of the House of Lords in the Camille and Henry Dreyfus Foundation Inc v Inland Revenue Commissioners [1956] AC 39, which established the requirement for a UK limb for the first limb, applied equally to the second limb. The reasoning in the Dreyfus case was that the law relating to charities or charitable trusts is a peculiar and complex part of our legal system. It would therefore be artificial and administratively difficult to ascertain whether the purposes of a body governed by foreign law were UK law charitable purposes. The appellants did not put forward any good reason why Parliament should have intended that the second limb of s23 should be broader than the first by encompassing trusts governed by foreign law but not overseas charities. Moreover such reasoning discriminates between overseas trusts and overseas incorporated charities, since only the former would fall within the s23 exemption.
- 2) Therefore the appeal was dismissed on the basis that the second limb of section 23(6) requires that the relevant trust be subject to the jurisdiction of the UK courts.
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