Summary

The word "receives" in the Finance Act 1990 s.25(2)(e) was a neutral term and did not import any requirement that the benefit had to be provided to or accepted by the donor by, or from, another person. It looked solely to the position of the donor and asked whether any benefit had been received by him, without reference to the source of that benefit.

Facts

The appellant (H), as trustee of a family charitable trust (the charity), appealed against income tax assessments made by the respondent commissioners for the purpose of recovering repayments of basic rate income tax made to the charity in respect of gifts of cash made to it. H and his sister (F) were beneficiaries under the will of their late mother (T). By a deed of variation they were each given a half share of the residuary estate, and they directed that the will should take effect as if it had provided for the payment to the charity of a legacy from each of their shares. It was intended that the Inheritance Tax Act 1984 s.142(1) and the Taxation of Chargeable Gains Act 1992 s.62(6) should apply, and the legacies were treated as passing by way of exempt transfers of value. The payments were treated as being made under gift aid and refunds were made by the Revenue. On the basis that the payments were "qualifying donations" for gift aid purposes, H and F received income tax relief. The issue was whether the inheritance tax exemption that became available by virtue of the deed of variation was a benefit prohibited by the Finance Act 1990 s.25(2)(e), preventing the payments from being qualifying donations.

Held

(1) The structure of the legislation in respect of the liability of personal representatives, in particular s.204(1) and s.211 of the 1984 Act, made it inapt to describe a reduction in a personal representative's an inheritance tax liability as a benefit to him in that capacity. Just as, in Daniels v Thompson (2004) EWCA Civ 307, (2004) PNLR 33, an increased liability to inheritance tax did not result in the personal representative suffering a loss in his capacity as such, so too a reduction in inheritance tax was not a benefit received by him in that capacity, Daniels applied and Inland Revenue Commissioners v Stannard (1984) 1 WLR 1039 Ch D considered. (2) That being so it was not necessary to consider whether any benefit would have been received by a person connected with H and F as the donors. However, full argument had been heard and the point would be considered. There had to be a distinction between a benefit received by an individual and one received by the same individual in a representative capacity, otherwise a different result would obtain depending on whether the residuary beneficiaries were also the personal representatives, or not. It was the Income and Corporation Taxes Act 1988 s.839(3) that had to be applied if any connection was to be established between the personal representatives and H and F as individuals. The settlor was T. Section 839(3)(b) could not apply because there could be no connection with a deceased person. Were the tribunal to have found that the personal representatives received a benefit, it would have concluded that those personal representatives were not connected with either H or F as donors, so that the receipt of such a benefit would not have fallen within s.25(2)(e) of the 1990 Act. (3) H and F, as donors of the charitable gifts, did receive a benefit in consequence of those donations. Section 142 of the 1984 Act had no deeming effect for the purposes of income tax, and for income tax purposes the deed of variation operated solely as a direction from H and F as residuary beneficiaries to the personal representatives to make the gifts out of their respective shares of residue. For those purposes, regard had to be had to the fact of the putative liability to inheritance tax that arose on T's death, and the fact of its elimination by the deeming effect of the deed of variation. In line with the reality, and not with the deemed inheritance tax position, for income tax there was a liability to inheritance tax, and it was subsequently removed. That was a benefit which had been received by H and F in their capacity as residuary beneficiaries. The word "receives" in s.25(2)(e) was a neutral term and did not import any requirement that the benefit had to be provided to or accepted by the donor by, or from, another person. It looked solely to the position of the donor and asked whether any benefit had been received by him, without reference to the source of that benefit. Finally, H and F had received the benefit in consequence of making the donations. The phrase "in consequence of making [the gift]" in s.25(2)(e) encompassed not only the payment but the whole process whereby the gift was made and all the arrangements for the making of it. The making of the gift had to be the reason why the benefit was received, it had to be the cause of the benefit and it was not sufficient that a benefit would not have been received but for the making of the gift, St Dunstan's v Major (HM Inspector of Taxes): Unreported June 11, 1997 Sp Comm considered.

Appeal dismissed