Two Settlors v Inland Revenue [2003] UKSC SPC00385 (07 October 2003)

INHERITANCE TAX – hold-over relief from capital gains tax where there has been a chargeable transfer for inheritance tax – Notice of Determination that there has been no loss to the transferor’s estate – whether a valid Determination – no, with the consequence that there is no right of appeal

THE SPECIAL COMMISSIONERS

	TWO SETTLORS	Appellant

	- and -

	THE COMMISSIONERS OF INLAND REVENUE	Respondent

		Special Commissioner:	DR JOHN F AVERY JONES CBE

Sitting in private in London on 3 October 2003

Christopher McCall QC instructed by Barlow Lyde & Gilbert for the Appellants

Peter Twiddy, Assistant Director, Capital Taxes Office, for the Respondent

© CROWN COPYRIGHT 2003

ANONYMISED DECISION ON JURISDICTION

1.	This is a decision on a preliminary issue concerning the jurisdiction of the Special Commissioners in relation to appeals against Determinations made on 7 May 1998 on Settlor 1, Settlor 2 and the Trustees of two settlements that there was no loss to the transferor’s estate by virtue of the execution of the settlements by Settlor 1 or by Settlor 2.  The Appellants were represented by Mr Christopher McCall QC, and the Commissioners of Inland Revenue by Mr Peter Twiddy.
2.	There was an agreed statement of facts as follows:
(1)	On 26 March Settlor 1 transferred certain shares in a company to the trustees of a settlement, thus effecting a disposal of the shares for capital gains tax purposes.  On the next day Settlor 2 transferred certain shares in the same company to the trustees of another settlement with similar capital gains tax consequences.  The form of the settlement was identical (mutatis mutandis) in each case and it was designed to enable it to be said that the making of the transfers would in each case constitute a transfer of value for the purposes of inheritance tax, albeit one that did not involve a transfer of such value as to attract any actual burden of inheritance tax, so that it could then be said to enable relief to be claimed from the burden of capital gains tax, which would otherwise have arisen by reference to the hold-over reliefs occasioned by section 260(2)(a) of the Taxation of Chargeable Gains Act 1992.
(2)	The Commissioners of Inland Revenue do not accept that the transfers constituted transfers of value for inheritance tax purposes and on 7 May 1998 issued what purported to be notices of determination under section 221 of the Inheritance Tax Act 1984 to that effect.  The taxpayers challenged those determinations.  The present proceedings were accordingly commenced under the impression that the appeal procedures of the Inheritance Tax Act 1984 had been set in motion.
(3)	The question has now arisen whether in fact that is the case or whether rather the issue between the parties can only be determined by the tribunal if and when capital gains tax appeals within the ambit of the Taxes Management Act 1970 have commenced, so that their capital gains tax liabilities if any (including all relevant issues) can be determined in those appeals.
3.	Section 260 of the Taxation of Chargeable Gains Tax Act 1992 provides for a hold-over relief in the following circumstances:
“(2) A disposal is within this subsection if it is made otherwise than under a bargain at arm’s length and—
(a) is a chargeable transfer within the meaning of the Inheritance Tax Act 1984….” 
Section 221 of the Inheritance tax Act 1984 provides:
“Where it appears to the board that a transfer of value has been made or where a claim under this Act is made to the board in connection with a transfer of value, the Board may give notice in writing to any person who appears to the Board to be the transferor of the claimant or to be liable for any of the tax chargeable on the value transferred, stating that they have determined the matters specified in the notice.”
By section 222 an appeal lies against a Notice of Determination under section 221.
4.	Mr McCall contends that I do not have jurisdiction in these proceedings to decide whether there has been a transfer of value; the matter should be decided as part of a capital gains tax appeal.  There is currently no capital gains tax assessment as enquiries are continuing and accordingly there is currently no capital gains tax appeal.  In addition to the relief under section 260 there is a potential issue of hold-over relief for business assets for capital gains tax.  He contends that the Determinations are not appropriate.  The Revenue are contending that no transfer of value has been made, and there is no claim under this Act [the Inheritance Tax Act] in connection with a transfer of value.  The statute provides for the situation that the Revenue assert that there has been a transfer of value or that it is accepted that there has been a transfer of value but the taxpayer claims some relief from inheritance tax.  Here the situation is the reverse; it is the taxpayer who claims that there has been a transfer of value.  Nor does the determination specify “any other matter that appeals to the Board to be relevant for the purposes of [the Inheritance Tax Act]” (section 221(2)(f)).
5.	Mr Twiddy contends that there is a claim under section 260 of the Capital Gains Tax Act 1992 for relief on the ground that there was a disposal which is “a chargeable transfer within the meaning the Inheritance Tax Act 1984.”  It is an inescapable part and parcel of that claim that there is an assertion that there must be a claim under or by reference to the Inheritance Tax Act that there was a chargeable transfer of value for inheritance tax purposes.  The Determinations rebut that assertion.  Accordingly the Determination is “in connection with” a transfer of value.
6.	The only way in which in the circumstances of this case there can be a valid Determination is “where a claim under this Act is made to the Board in connection with a transfer of value.”  The Appellants contend that there is a transfer of value and hence a chargeable transfer; the Revenue contends that there is not.  One would expect that to be the proper subject of an inheritance tax appeal but it does not fit the wording of section 221.  There is no claim “under this Act [the Inheritance Tax Act],” which implies a claim for relief under that Act, but a claim for relief under the Taxation of Chargeable Gains Act in consequence of a disposal being a chargeable transfer.  That claim is certainly in connection with a transfer of value (if there is one), but that does not make it a claim for anything under the Inheritance Tax Act.  Nor does the Determination specify anything “relevant for the purposes of [the Inheritance Tax Act].”
7.	Accordingly in my view the Determinations do not fall within section 221 and so there is no valid appeal.  I do not have any jurisdiction to determine whether there has been a chargeable transfer in these proceedings.  This does not deprive the taxpayer of any right of appeal; the matter will have to be determined in any subsequent capital gains tax appeal.  These proceedings will therefore be struck out.

J F AVERY JONES

SPECIAL COMMISSIONER

SC 3132-3/1999