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Charitable gift to Jersey trust did not qualify for IHT exemption

9th Aug 2019
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A charitable gift to a trust was not eligible for inheritance tax exemption, on the grounds that the trust was established under and governed by Jersey law, as opposed to being governed by UK law and subject to the jurisdiction of the UK courts.

The deceased’s will provided for a charitable gift to a trust. The trust was established under and governed by Jersey law. HM Revenue and Customs considered that the gift to the trust did not fall within the inheritance tax exemption for gifts to charities (IHTA 1984, s 23), on the basis that as the trust was governed by Jersey law, it did not qualify as a ‘trust for charitable purposes only’ (within s 23(6)). 

The High Court ([2014] EWHC 3010 (Ch)) dismissed the appellants’ appeal. It concluded that the expression ‘held on trust for charitable purposes’ in s 23(6) requires not only that the charitable purposes be UK law charitable purposes, but that the relevant trust must be subject to the jurisdiction of the UK courts as well. The appellants appealed.

The Court of Appeal noted that s 23 could be read as having two limbs. The first limb exempts a transfer if the property becomes the property of any body of persons or trust established for charitable purposes only. The second limb exempts a transfer if property is held on trust for charitable purposes only. 

The appellants accepted that the deceased’s will did not effect a transfer within the first limb of s 23, as it was held in Camille and Henry Dreyfus Foundation Inc v IRC [1956] AC 39 that the phrase ‘trust established for charitable purposes only’ contained an implicit limitation such that it only includes trusts governed by UK law and subject to the jurisdiction of the UK courts. 

The Court of Appeal concluded that the High Court did not fall into error in finding that the phrase ‘held on trust for charitable purposes only’ in the second limb of s 23 carries the same implicit requirement that the trust must be governed by UK law and subject to the jurisdiction of the UK courts. 

A further issue was whether s 23, if construed as held by the High Court, would constitute an unlawful restriction on the free movement of capital between Member States and third countries within the meaning of Article 63 of the Treaty on the Functioning of the European Union. In light of Court of Appeal’s conclusion on the first issue, it was necessary to deal with this further issue, and the parties were invited to propose directions for that purpose.

Routier & Anor v Revenue and Customs [2016] EWCA Civ 938

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