Ingram v Inland Revenue Comrs

For the gifts-with-reservation provisions, the relevant property is the specific beneficial interest given, rather than the physical asset in which that interest subsists. A donor may retain and enjoy a distinct proprietary interest which was never included in the gift.

A gift of land subject to an immediate obligation to grant the donor a lease back may therefore be a gift only of the reversion. The result depends on the substance of the beneficial interests created, not on a momentary conveyancing sequence in which the freehold technically precedes the lease. Any additional contractual benefits obtained from the donee may, however, constitute benefits reserved from the gift.

Lady Ingram transferred her country house and adjoining land through her nominee to trustees for her children and grandchildren. Before the transfer to the trustees, the nominee purported to grant her rent-free leases for 20 years. She intended to give only the freehold reversion while retaining the right to occupy the property.

The Inland Revenue determined under section 221 of the Inheritance Tax Act 1984 that section 102 of the Finance Act 1986 applied. Ferris J, whose decision is reported at [1995] STC 564, held that the purported leases were invalid but that the gift was nevertheless not subject to a reservation. A majority of the Court of Appeal reversed that conclusion; Millett LJ dissented.

The central issue was whether the trustees received the unencumbered freehold and granted a benefit back to Lady Ingram, or received only the freehold reversion shorn of the leasehold interests which she retained.

1. Appeal allowed unanimously. Lord Hoffmann delivered the leading speech. Lord Browne-Wilkinson, Lord Steyn and Lord Clyde agreed with his reasons. Lord Hutton reached the same conclusion in a separate speech. The gift was not property subject to a reservation under section 102 of the Finance Act 1986.

2. Per Lord Hoffmann, section 102 is concerned with beneficial interests rather than conveyancing form. “Property” means the particular legal or equitable interest given, not the physical asset itself. A donor may continue to benefit from the physical asset where that benefit is attributable to a distinct proprietary interest which was never included in the gift. The donee must enjoy the interest actually given to the exclusion of the donor.

3. Per Lord Hoffmann and Lord Hutton, the trustees and beneficiaries never beneficially held the land free from Lady Ingram’s leasehold interests. Even if the nominee’s leases had initially been ineffective, the obligation to give effect to those interests arose immediately when the freehold vested in the trustees. In substance, the gift was therefore of the reversion expectant upon the leases. The technical sequence under conveyancing law did not create a moment during which the donees beneficially owned an unencumbered freehold.

4. The House preferred and approved Walton J’s analysis in In re Nichols, deceased [1974] 1 WLR 296. It rejected the contrary dictum of the Court of Appeal reported at [1975] 1 WLR 534. A simultaneous conveyance and lease back may amount to a gift only of the reversion. Where the lease contains additional covenants conferring benefits beyond the leasehold estate itself, those additional benefits may constitute reservations. Lady Ingram obtained no such benefits; the covenant for quiet enjoyment was merely an incident of the lease.

5. Lord Hoffmann and Lord Hutton also considered that the nominee validly granted the leases. Under English law a trustee is not the beneficiary’s agent and contracts in the trustee’s own name. The rule that a person cannot grant a lease to himself therefore did not invalidate these leases.

6. The conclusion on section 102 was sufficient to decide the appeal. The House consequently expressed no view on whether the transactions could be disregarded under the principle in W T Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300.

1. House of Lords: Allowed the executors’ appeal unanimously and restored the conclusion that section 102 of the Finance Act 1986 did not apply.
2. Court of Appeal: By a majority of Nourse and Evans LJJ, Millett LJ dissenting, held that the leases were invalid and that Lady Ingram’s leasehold interest was a benefit reserved from the unencumbered freehold given to the trustees.
3. High Court: Ferris J held at [1995] STC 564 that the purported leases were invalid, but that the trustees never beneficially held the property free from Lady Ingram’s leasehold interests. He held that section 102 did not apply.
4. Commissioners of Inland Revenue: Determined under section 221 of the Inheritance Tax Act 1984 that section 102 applied and that the estate included the value of the unencumbered freehold at Lady Ingram’s death.