Guild (Executor Nominate of the late James Young Russell) v Commissioners of Inland Revenue

The House of Lords allowed the appellant's appeal and held that the residue bequest qualified for the charitable exemption from capital transfer tax under paragraph 10 of Schedule 6 to the Finance Act 1975, read with section 1 of the Recreational Charities Act 1958. The court applied the technical English law of charity for tax purposes and adopted a benignant approach to construing the testator's words, holding that the reference to "some similar purpose in connection with sport" was to be read as referring to facilities similar in character to the Sports Centre (in particular the nature of facilities and their availability to the public at large) and so fell within the Act of 1958. The House rejected the Crown's alternative contention (abandoned before the Lords) that the later cy-pres scheme should determine charitable status and also rejected the argument that the residue was not "held on trust" for charitable purposes in the interim period.

The appellant, executor nominate of the late testator, appealed against a determination of the Commissioners of Inland Revenue that the deceased's residuary bequest was not exempt from capital transfer tax as a gift to charities under paragraph 10 of Schedule 6 to the Finance Act 1975. The will left the 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 before the testator's death; the Sports Centre and related responsibilities had become those of East Lothian District Council and a cy-pres scheme had later been approved by the Court of Session.

The proceedings went first to an action in the Court of Session (including an interlocutor ranking the appellant's administrative claim and a cy-pres order) and then to the First Division as the Court of Exchequer in Scotland, which, by majority (15 March 1991), refused the appellant's appeal against the Revenue's determination. The appellant appealed to the House of Lords.

(i) Nature of the claim: the appellant sought a declaration that the bequest was charitable for the purposes of paragraph 10, Schedule 6, Finance Act 1975, and therefore exempt from capital transfer tax.

(ii) Issues framed: whether (a) the relevant property was "given to charities" or "held on trust" for charitable purposes within paragraph 10(3) of Schedule 6; (b) the bequest, in particular the words "some similar purpose in connection with sport", fell to be construed as charitable under section 1 of the Recreational Charities Act 1958; and (c) whether the later court-approved cy-pres scheme should be treated as determinative for tax purposes (a point later abandoned).

(iii) Reasoning: the Lords held that for tax purposes the technical English law definition of "charity" applies. The court accepted that the Sports Centre's facilities met section 1(1) of the Recreational Charities Act 1958 and that the proviso of public benefit was satisfied; it rejected the submission that "social welfare" required the beneficiaries to be a deprived class, following authorities that the Act's subsection (2) sets out the essential elements and that availability to the public at large suffices. On construction, using a benignant approach appropriate to charitable instruments, the adjective "similar" was taken to refer to key characteristics of the Sports Centre (the nature of facilities and their availability to the public) rather than to permit non‑charitable uses. Accordingly the bequest qualified for the charitable exemption and the Revenue's determination was set aside.

Appeal allowed. The House held that the residuary bequest qualified as property "given to charities" for the purposes of paragraph 10, Schedule 6, Finance Act 1975 because the gift fell within section 1 of the Recreational Charities Act 1958. The court applied the technical English law of charity for tax purposes, adopted a benignant construction of the will, and construed "some similar purpose in connection with sport" as referring to facilities similar in character to the Sports Centre (not permitting non‑charitable applications). Accordingly the Revenue's determination was set aside and the matter remitted to the Court of Session; costs were awarded to the appellant.

The action began in the Court of Session in Scotland where the Lord Ordinary (Lord Jauncey) by interlocutor dated 5 April 1986 ranked and preferred the appellant's administrative claim to the fund in medio and a cy-pres scheme was approved on 14 June 1988. The Commissioners' determination (8 June 1990) was appealed to the First Division as the Court of Exchequer in Scotland which, by interlocutors of 15 March 1991, by majority dismissed the appellant's appeal. The appellant then successfully appealed to the House of Lords ([1992] UKHL 16, judgment 27 February 1992).