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AIA

I fought the law (and the law won). By Simon Sweetman

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15th Jun 2007
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So what are the Law Lords up to (note – is it allowed to ask that question, or is it contempt of court?). For between two and six weeks (some say thirteen) we will be left on the edge of our seats waiting for the denouement.

The most eagerly awaited tax case in years, Jones v Garnett, which has dragged its way along the long and dusty road from the Special Commissioners, with the result bouncing back and forth, comes before them and is all over in a day and a half as people apparently ran out of things to say and points to argue about.

Was this because they have heard something that suddenly made it all clear? The settlements legislation (now Chapter 5 of ITTOIA 2005) is perhaps the Schleswig Holstein question of our day, of which Lord Palmerston said, “Only three people understood the Schleswig-Holstein Question. The first was Albert, the Prince consort and he is dead; the second is a German professor, and he is in an asylum: and the third was myself - and I have forgotten it."

What was in the devious mind of the Parliamentary draftsman when he crafted it in the first place? What we can be sure of is that it was nothing to do with limited companies: back then in the 1930s the problem was the wealthy attempting to pass income for tax purposes to trusts for their minor children and descendants – not then their wives, because the income of a married woman was deemed to be that of her husband in any case.

The law lords (with, as they say, the greatest respect) are the final arbiters in this case. If HMRC loses – and it will only win if someone does find a new angle, because it was trounced in the Court of Appeal – it will be back to the drawing board for some new legislation. After all, there is now little point in assessing income at 40% as that of the settlor when a settlement will pay at the same rate, so the root reason for it has disappeared.

There are some tax cases where everything swings into reverse in the House of Lords, usually because somebody decides that some aspect of the case has a significance that nobody had spotted. It looks like the candidate here might be “bounty”, and the argument that you can have a settlement without settled property (presumably where what is transferred is an income stream): but you do need bounty.

There are also cases where the House of Lords (perhaps more than the lower courts) seems to decide what would be fair and then finds a reason – the ratio decidendi – officially, the legal reasons of judge in reaching a finding in a case brought before the court. In reality, it’s the way the wind is blowing.

My bet here? I think the settlements legislation has run its course and is looking for a decent burial…..but I could be wrong.

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