IHT: No relief on £976,781 gift to UKIP
In 2018 Arron Banks failed to convince the FTT that his contributions to the UK Independence Party (UKIP) should be exempt from inheritance tax (IHT). He has asked the upper tribunal to reverse that judgment but has failed again.
Banks wished to obtain IHT relief under IHTA 1984 s24 (gifts to political parties). Relief was denied because, under the rules specified in s24, UKIP was not a qualifying “political party”.
What is a political party?
To qualify for IHT relief, a party must, at the last general election prior to the donation, have had either:
- two MPs elected to the House of Commons, or
- one member elected and received at least 150,000 votes.
Banks made the donations between October 2014 and March 2015, although UKIP had two MPs at that time they had both been elected at by-elections, not at a general election. Hence when Banks made the donations, UKIP did not qualify as a political party for the IHT relief.
At the FTT Banks argued that he had suffered discrimination, contrary to his rights under Article 14 of the European Convention on Human Rights (ECHR). The FTT disagreed, and so his appeal came before the upper tribunal.
Errors of law?
Banks argued that the FTT had made errors of law, in particular by refusing to apply s3 of the Human Rights Act in order to re-interpret IHTA 1984 s 24 in a manner that was consistent with his ECHR rights (despite having concluded that the section had caused indirect discrimination).
He argued that he had been discriminated against based upon his “status” as a supporter of either:
- UKIP in particular; or
- a “new party”, or a “party with no MPs” in a more general sense.
The judges considered some illuminating facts:
- Before the 2010 election, neither UKIP nor the Green Party qualified for tax relief on donations, since neither had MPs
- Following the 2010 general election, the Green Party qualified (Caroline Lucas MP was elected) while UKIP still did not
- Following the 2015 general election, both UKIP and the Greens qualified
- From 2017, UKIP once again failed to qualify (unlike the Greens).
Examining the above, it was clear that IHTA 1984 s 24 did not directly discriminate against UKIP supporters, any more than it did against Greens. Either party could (and at different times did) place itself in a position where donors could claim IHT relief.
Indirect discrimination prohibited under Article 14 may arise “where a policy or measure produces a particularly prejudicial impact on certain persons as a result of a protected ground… [and] has no ‘objective and reasonable’ justification”.
The judges were unconvinced that the rules in s 24 had a “particularly prejudicial impact” on UKIP supporters as compared to supporters of any number of other political parties which – through “political happenstance” – failed to meet the criteria at any given time.
Nor was there any “evidence that any UKIP donor would have donated more to UKIP if he were entitled to the exemption or that the pattern of donations changed after the 2015 general election when UKIP did qualify for the exemption”.
The UT did go so far as to rule that the FTT had erred in law – but not how Banks thought. The FTT’s error lay in deciding that Banks had suffered any prohibited discrimination (either direct or indirect) as a supporter of UKIP.
Supporter of a “new party”?
By 2014/15, when Banks made his donations, UKIP had been in existence for 23 years. The term “new party” is too vague to constitute an identifiable characteristic or “status”.
As for “supporter of a party with no MPs”, this fell foul of the independent existence condition: “the status must not be defined solely by the difference in treatment complained of”. In other words, the proposed “status” was “merely the difference in treatment itself”.
Banks was, in effect, alleging that he was being discriminated against for being someone to whom the rules denied relief.
Since the UT found that Banks had not suffered discrimination, they needed to look no further, but they did. Even if discrimination had arisen from s24, it would be justifiable if:
- it had a legitimate aim (or policy objective) and
- it was proportionate.
There was general agreement that s24 had a legitimate aim. Unfortunately, the FTT had arrived at the wrong one (which damaged its judgment on the issue of proportionality).
Role of section 24
The FTT believed that this section’s aim was to “restrict… donations to those political parties that play a meaningful role within national political debate”. This led them to conclude that the legislation was unfit for purpose, since it ignored such matters as success in:
- European Parliament elections
- Elections to devolved governments and assemblies
- Local government elections.
After a detailed examination of the parliamentary record, the UT came to a very different opinion of the policy objective behind s24. It was designed in 1975 to complement and augment the “Short Money” approach towards funding parties’ activities specifically in Westminster. A short-lived proposal in 2016 to extend that scope was never carried out.
The judges concluded that, based upon its genuine aim, the provision was clearly proportionate. As it is primary legislation, it is not for the tribunals to recast it.
The FTT had come to the right conclusion, albeit partly for the wrong reasons.
- The IHT rules did not unlawfully discriminate against Banks.
- The FTT’s belief about the aim of section 24 was incorrect. In the light of the actual aim of the section, even if it created discrimination, it would be justifiable.
- The FTT was right not to attempt to rewrite section 24 to admit what they thought were Banks’ ECHR rights. “A line has to be drawn somewhere and… it is for Parliament to decide where to draw that line”.
Banks is still not getting his IHT relief. Time to give up gracefully?