Guild v Inland Revenue Comrs

The House held that a residuary bequest to a defunct local council for use of a sports centre (or for "some similar purpose in connection with sport") qualified as a gift "to charities" for the charitable exemption in Schedule 6 paragraph 10 of the Finance Act 1975, when construed by reference to the Recreational Charities Act 1958. The court applied a benignant construction to avoid defeating an apparent charitable intention. Facilities available to the public at large satisfy section 1(2)(b)(ii) of the Recreational Charities Act 1958.

The testator left residue to the Town Council of North Berwick "for the use in connection with the Sports Centre in North Berwick or some similar purpose in connection with sport". The Town Council had ceased to exist by local government reorganisation. A cy-pres scheme had been approved and the residue was applied for recreational purposes under that scheme. The Commissioners determined the transfer was not an exempt charitable transfer for capital transfer tax (Schedule 6, Finance Act 1975). The First Division (Court of Session sitting as the Court of Exchequer in Scotland) dismissed the taxpayer's appeal by majority on the ground that the second limb of the gift was too wide. The present appeal to the House of Lords raised the question whether the bequest qualified as given to charities within paragraph 10(3) of Schedule 6 when read with the Recreational Charities Act 1958.

1. Disposition: The House allowed the appeal. The determination of the Commissioners of Inland Revenue dated 8 June 1990 was set aside and the cause remitted to the Court of Session (per Lord Keith of Kinkel with whom Lords Roskill, Griffiths, Jauncey and Lowry agreed).
2. Construction of recreational-charity test: Section 1 of the Recreational Charities Act 1958 was applied. Facilities provided for recreation meet the statutory requirement of being "in the interests of social welfare" where they are provided with the object of improving conditions of life for the persons primarily intended, or are available to the public at large under section 1(2)(b)(ii). The 1958 Act supplies the technical meaning of "charity" for tax purposes in this context (see Lord Keith).
3. Benignant construction: In deciding whether the second limb ("some similar purpose in connection with sport") was charitable the House adopted the established benignant approach to instruments capable of a charitable construction. Where two constructions are open, the court prefers the construction that gives effect to a charitable intention rather than one that defeats it. That approach applied equally for tax purposes when English charitable law is imported into Scottish law for interpretation of the statute.
4. Application to facts: The word "similar" was read to require similarity in relevant characteristics of the Sports Centre, notably the nature of facilities and availability to the public at large. On that construction the second limb was charitable and the bequest qualified for the tax exemption.
5. Practical orders: Appeal allowed; respondent's determination set aside; appellant to have costs and expenses as stated.

• Court of Exchequer in Scotland (First Division, Court of Session): Appeal against Commissioners' determination refused by majority (Lord President Hope and Lord Mayfield; Lord McCluskey dissenting) (Interlocutor dated 15 March 1991).
• House of Lords: Appeal allowed; determination of 8 June 1990 set aside; cause remitted to Court of Session (Judgment 27 February 1992).