Jerome (Appellant) v. Kelly (Her Majesty's Inspector of Taxes) (Respondent), (2004)

Extract

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Jerome (Appellant) v. Kelly (Her Majesty's Inspector of Taxes) (Respondent), (2004)

HOUSE OF LORDS

SESSION 2003-04

[2004] UKHL 25

on appeal from: [2002] EWCA Civ1879

OPINIONS

OF THE LORDS OF APPEAL

FOR JUDGMENT IN THE CAUSE

Jerome (Appellant)

v.

Kelly (Her Majesty's Inspector of Taxes (Respondent)

ON

THURSDAY 13 MAY 2004

The Appellate Committee comprised:

Lord Nicholls of Birkenhead

Lord Hoffmann

Lord Scott of Foscote

Lord Walker of Gestingthorpe

Lord Brown of Eaton-under-Heywood

HOUSE OF LORDS

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

Jerome (Appellant) v. Kelly (Her Majesty's Inspector of Taxes (Respondent)

[2004] UKHL 25

LORD NICHOLLS OF BIRKENHEAD

My Lords,

1.  I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Hoffmann and Lord Walker of Gestingthorpe. For the reasons they give, with which I agree, I would allow this appeal.

LORD HOFFMANN

My Lords,

2.  The capital gains tax legislation deals with trusts in a practical way. Like most tax legislation, it is concerned with economic reality and efficiency of collection. In the case of bare trusts, such as nominee shareholdings, it ignores the trustee and treats his acts as those of the beneficiary. The latter has the entire economic interest in the assets and is therefore treated as having dealt with them. In the case of more complicated settlements, this system would not work. It might be no easy matter to determine how the economic benefit of the disposal has accrued to the various people with interests (fixed, vested, contingent and so forth) under the settlement. So that tax is charged upon the trustee, who is left to indemnify himself out of the fund.

3.  In both cases, the law avoids taxing the same gain twice. In the case of bare trusts, the mechanism is simple. The law taxes the beneficiary whether he disposes of his beneficial interest or the trustee disposes of the entire property. In both cases there is a single charge upon the beneficiary. In the case of other trusts, the mechanism is different. The trustee is charged to tax, but because he is only legal owner, he is entitled to an indemnity out of the fund. The beneficiary's interest is an item of property distinct from the underlying assets but an assignment of that interest is not ordinarily treated as a disposal giving rise to a liability to tax. Otherwise a beneficiary who disposed of his interest would be taxed ...

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