Tax was due on UKIP donationsby
Arron Banks sought to use the European convention on human rights to argue that IHT charged on gifts he made to the UK Independence Party (UKIP) amounted to a breach of his human rights.
Transfers of value (gifts or donations) made to organisations and companies (ie not to other individuals) are chargeable to IHT unless the organisation is exempt. There are specific exemptions for gifts to charities, to housing associations, for national purposes, maintenance for historic buildings and to political parties.
Chargeable lifetime gifts can also benefit from an annual exemption of £3,000, an exemption for normal expenditure paid out of income and the “nil rate band” of £325,000. Any capital gift not covered by any of these will suffer a 20% tax charge.
Arron Banks was one of the largest donors to UKIP. In 2014/15 Banks, and companies he controlled, made donations totalling £976,781 to that organisation. HMRC raised an assessment on these donations for IHT of £162,945.
Banks asserted (in case TC06768) that to deny these contributions an exemption from IHT (IHTA 1984 s24 – gifts to political parties) was a breach of his human rights.
UKIP is not a “political party”
Banks’ claim under IHTA 1984 s 24 was denied because UKIP, at the time the donations were made, failed the statutory test for a qualifying political party. This requires the party, at the last general election prior to the donation, to have had either:
- Two MPs elected to the House of Commons; or
- One member elected and received at least 150,000 votes.
At the relevant time, UKIP had two MPs, but neither had been elected at the 2010 general election, as both had been elected in subsequent by-elections. As the judge pointed out, it didn’t matter that UKIP had polled more votes than parties which had succeeded in having candidates elected. The test was an objective one and it had been failed.
His human rights
In fact, Banks had never argued that UKIP passed the statutory definition. His argument was that applying section 24 strictly constituted “a breach of his human rights and a breach of EU law”.
Specifically, he claimed discrimination contrary to Article 14 of the European convention on human rights (ECHR), and in particular with regard to rights bestowed by Article 1 of the first protocol to the ECHR (A1P1) – the protection of property.
What the Articles provide
A1P1 refers to the right of peaceful enjoyment of his possessions, which are not to be taken from him unjustly. However, the state may enforce laws which deprive persons of property in the public interest “or to secure the payment of taxes”.
Article 14 provides (so far as it relates to Banks’ claim) that the rights and freedoms set out in the convention must be enjoyed without discrimination “on any ground such as… political or other opinion… or other status”.
Counsel for Banks argued that there was clear discrimination against him for his political views: had he been a contributor to the Labour or Conservative party, he would have been granted exemption from IHT for the donations.
HMRC argued that Banks lost out not because of his opinions, but because of his choices of action: he should pay IHT because he chose to donate to a party which failed the objective test in IHTA 1984, s 24.
The judge referred to the judgment of the European court of human rights in Clift which confirms that the convention seeks “to guarantee not rights that are theoretical and illusory but rights that are practical and effective”. That being so, its protection “should also extend to the actions that he takes as direct consequence of [his views], including making a donation to a political party that shares his opinions”.
Banks’ political opinions include his acts based on those opinions, and are, therefore, potentially a factor here. There were clearly others (for example Labour Party contributors) whose treatment was different based upon their alternative political opinions.
Limitations of FTT
The FTT did recognise that the provisions of IHTA 1984 s 24 are not proportionate to the aim of encouraging the private funding of political parties which are participating in parliamentary democracy. It also acknowledged that the effect of the legislation is discriminatory against the supporters of newer and smaller parties, and that it places undue emphasis on the outcome of general elections whilst ignoring European elections or by-elections. But the FTT cannot simply invalidate those provisions.
Section 3 of the Human Rights Act (which brings the ECHR into UK law) requires courts to “give legislation an interpretation which is consistent with ECHR rights even if the relevant legislation is not itself ambiguous”. It does not empower the courts to rewrite statute root and branch.
While clearly it is unsatisfactory that the definition in IHTA 1984 s 24 (which was originally drafted in 1975) does not reflect the modern political landscape, to remedy it is the work of parliament, not the tribunals. The judge was “not able to re-write the legislation”.
Because the discrimination appeal had failed, the judge did not need to examine whether Banks was being discriminated against as a result of his “status” as a UKIP supporter. The judge did so for completeness, and declined to treat Banks’ UKIP support as constituting an “other status”.
This was an appeal which was never likely to prosper. Even setting aside the irony of the situation (a UKIP sponsor seeking the aid of EU law), it was directed to the wrong forum.
The FTT has the power to interpret UK law in a manner consistent with the ECHR; it does not have the power to ignore UK law where there is inconsistency, and certainly not to rewrite it into a more acceptable format.
If the definition in IHTA 1984 s 24 is obsolete (which is more than arguable), only parliament can do anything about it. The tribunals and courts will not be able to help.