Guild v Inland Revenue Comrs

The Recreational Charities Act 1958 is not confined to trusts for the benefit of socially "deprived" classes. Facilities qualify as being "provided in the interests of social welfare" if they are provided to improve the conditions of life of the persons concerned, which may include the public at large. Section 1(2)(b)(ii) can satisfy the statutory test where facilities are available to the public generally. Where a statutory tax exemption depends on a gift being charitable, the technical English law of charity applies and courts should adopt the benignant construction used in charity law when construing bequests for tax purposes.

This appeal concerned whether a residuary testamentary gift to a defunct town council for use in connection with the local sports centre (or similar purposes) qualified for the charitable exemption from capital transfer tax in paragraph 10 of Schedule 6 to the Finance Act 1975. The town council had ceased to exist by local government reorganisation and the facility came under the district council. The Court of Session (First Division) by majority had rejected the taxpayer's appeal. The House of Lords considered (a) the meaning of "charity/charitable" for tax purposes, (b) the scope of the Recreational Charities Act 1958 s.1, in particular the phrase "in the interests of social welfare" and s.1(2), and (c) construction of the words "some similar purpose in connection with sport" in the will. The central issue was whether the bequest (or purposes to which it might be applied) met the Act's requirements so as to attract the tax exemption.

1. Disposition: The House allowed the appeal and set aside the Commissioners' determination. Costs were awarded to the appellant (House of Lords).
2. Per Lord Keith of Kinkel (leading speech): when construing "charity/charitable" in a UK tax statute a Scottish court must apply the technical English law of charity. The benignant approach used in construing charitable gifts applies equally when deciding tax consequences that depend on charitable status.
3. Section 1 of the Recreational Charities Act 1958: the phrase "in the interests of social welfare" is not limited to persons suffering social deprivation. Subsection 1(2) sets out the essential elements for that requirement. In particular, s.1(2)(b)(ii) (availability to the public at large) suffices to satisfy the statutory test in appropriate cases (per Lord Keith; Lords Roskill, Griffiths, Jauncey and Lowry agreed).
4. Application to the will: the adjective "similar" must be read by reference to the salient characteristics of the Sports Centre — principally the nature of facilities provided and that they were available to the public at large. Construed benignly, the secondary phrase "some similar purpose in connection with sport" was held to be charitable within s.1 of the 1958 Act and thus within the exemption in Schedule 6 para 10 of the Finance Act 1975.
5. Practical guidance: where a charitable bequest refers to an institution or body that has ceased to exist, courts should construe the testamentary language to give effect to a general charitable intention where possible, and such a construction governs entitlement to tax exemptions predicated on charitable status.

• Court of Session, First Division (Scotland): Appeal refused by majority (15 March 1991) (see judgment for details of majority and dissent).
• House of Lords: Appeal allowed; Commissioners' determination set aside and cause remitted to the Court of Session (27 February 1992).