Melville v Inland Revenue Comrs

A general power of appointment capable of producing value is property for inheritance-tax purposes. The extended definition in section 272 of the Inheritance Tax Act 1984 applies unless the statutory context compels a different meaning.

Sections 5(2) and 151(4), which deem a holder of a specified general power beneficially entitled to the underlying assets, do not require the exclusion of a general power over settled property from the holder’s estate. The possibility of double taxation is relevant but does not displace the statutory language. A general power is materially different from a reversionary interest.

The settlor transferred cash, shares and loan notes into a settlement while retaining, after a short initial period, a power to direct the trustees to appoint the whole trust fund to him absolutely. The Revenue determined under section 222 of the Inheritance Tax Act 1984 that the power was not property forming part of his estate. On the taxpayers’ appeal, Lightman J allowed the appeal: [2000] STC 628.

The Revenue appealed. The central issue was whether the retained general power was property within the settlor’s estate when calculating the value transferred by the dispositions into the settlement.

Disposition

The Court of Appeal unanimously dismissed the Revenue’s appeal. Peter Gibson LJ gave the judgment, with which Kay and Arden LJJ agreed.

1. Section 272 gives property an extended meaning which includes rights and interests of every description. A general power of appointment, enabling its holder effectively to obtain valuable assets, is a valuable right. It is therefore capable of being property for the purposes of the Inheritance Tax Act 1984.

2. The statutory definition must be applied unless the relevant context requires a different construction. That requires necessity, not merely that another construction would fit aspects of the statutory scheme. The court rejected the Revenue’s proposed preliminary approach of treating property and powers as necessarily distinct before applying section 272.

3. Sections 5(2) and 151(4) did not provide the required contrary context. Those provisions deem the holder of a specified general power beneficially entitled to the underlying property or money. They do not merely deem the power itself to be property, and gave uncertain guidance as to the position without the deeming provisions.

4. The settled-property provisions did not require the power to be ignored. A general power is fundamentally different from a reversionary interest. The possibility that the statutory scheme may tax the value of the same assets by reference to different persons was a factor favouring the Revenue, but was not decisive. Nothing in the Act excluded the power from the settlor’s estate.

The clause 4(c) power was property whose value fell to be taken into account under sections 3(1) and 5(1). The order allowing the taxpayers’ appeal was upheld, and the Revenue’s appeal was dismissed with costs.

• Court of Appeal (Civil Division) The Revenue’s appeal was dismissed: [2001] EWCA Civ 1247.
• High Court, Chancery Division (Revenue List) Lightman J allowed the taxpayers’ appeal against the Revenue’s determination and held that the retained power was property: [2000] STC 628.