Frankland v Inland Revenue

For relief under section 144 of the Inheritance Tax Act 1984, it is insufficient that an event occurs within two years of death. The event must be one on which tax would otherwise be chargeable under Chapter III of Part III, or fall within the specified statutory exceptions. Section 65(4), which makes section 65(1) inapplicable to an event occurring in the first quarter of a settlement period, removes chargeability. Such an event therefore cannot qualify under section 144(1)(a). Sections 142, 143 and 144 provide different reliefs with different conditions. Perceived anomalies, unfairness or legislative history cannot justify rewriting clear statutory language. Words may be read into a statute only in tightly confined circumstances.

The deceased’s will created a discretionary trust. Within two years of her death, the trustees transferred shares from that trust into a new settlement under which her husband had an interest in possession. They sought to obtain inheritance tax relief under section 144 of the Inheritance Tax Act 1984.

The Commissioners determined that the deemed transfer on death was not exempt. Rattee J upheld that determination on 9 May 1996. The central issue before the Court of Appeal was whether the transfer was an event on which tax would have been chargeable under section 65, notwithstanding section 65(4), and whether section 144 should be construed purposively to provide relief.

1. Appeal dismissed. Peter Gibson LJ delivered the principal judgment. Thorpe LJ agreed. Chadwick LJ agreed that the appeal should be dismissed and gave separate reasons substantially supporting the same construction. The order was made with costs and leave to appeal was refused.
2. The relevant provisions of the Inheritance Tax Act 1984 had to be read in context and, so far as the statutory language allowed, according to their purpose. But the judicial function was interpretation, not legislation. Words could be read into an Act only in closely confined circumstances, such as where the literal reading produced a wholly unreasonable or unintelligible result, an omission was apparent, and the additional words could be identified with certainty.
3. Section 65(4) provided that section 65(1) did not apply where the relevant event occurred during the specified first quarter. The consequence was that no tax was chargeable on that event under section 65. The transfer of the shares therefore could not satisfy section 144(1)(a), which required an event on which tax would otherwise have been chargeable.
4. Section 144(1)(a) was directed to preventing a second charge on an otherwise chargeable event. Section 144(1)(b) dealt separately with events which would have been chargeable but for the specified relieving provisions. Sections 142, 143 and 144 were not a composite code with identical conditions. The express treatment of certain exemptions in paragraph (b), without reference to section 65(4), provided no basis for inserting section 65(4) into that paragraph.
5. The different tax consequences produced by timing, settlement structure or unusual contingencies did not amount to absurdity. They could not justify treating a non-chargeable event as chargeable or rewriting section 144. The consolidation history and ministerial statement were also inadmissible or unhelpful because the statutory meaning was clear and the requirements for resort to parliamentary material were absent.
6. Chadwick LJ observed, obiter, that a future case might require consideration of whether section 144(1)(b) could apply where section 65(4) appeared to exclude relief. That issue did not arise because the present case concerned section 144(1)(a).

• Court of Appeal (Civil Division): [1997] EWCA Civ 2674. Appeal dismissed with costs; leave to appeal refused.
• High Court of Justice, Chancery Division: Rattee J, on 9 May 1996, upheld the Commissioners’ determination that the deemed transfer of value on the deceased’s death was not an exempt transfer.