Inland Revenue v Rysaffe Trustee Company (CI) Ltd

For the ten-year inheritance-tax charge, separate discretionary trusts which each satisfy the statutory definition of a settlement remain separate settlements. Inheritance Tax Act 1984 section 43 identifies what is a settlement and what property it comprises; it does not authorise aggregation of otherwise discrete settlements.

The extended meaning of disposition, which includes dispositions by associated operations, assists where it is disputed whether there was a relevant disposition. It does not permit the Revenue to reduce the number of qualifying settlements or aggregate their property where the ordinary dispositions into each trust are undisputed.

Two UK-domiciled brothers each executed five substantially similar discretionary trust deeds in 1984. Shares in their private company were subsequently added to each trust. The overseas trustee contended that each brother had created five settlements; the Commissioners contended that the arrangements constituted one settlement for each brother for the periodic inheritance-tax charge.

The Special Commissioner dismissed the trustee’s appeals, holding that associated operations produced one settlement. Park J allowed the trustee’s appeal in [2002] STC 872. The Commissioners appealed. The central issue was whether sections 43, 268 and 272 of the Inheritance Tax Act 1984 allowed five discrete settlements to be treated as one.

1. Appeal dismissed unanimously. Mummery LJ, with whom Dyson and Schiemann LJJ agreed, held that Park J was correct. Each brother had made five separate settlements, and the ten-year charge fell separately on the property comprised in each trust.

2. Section 43(1) of the Inheritance Tax Act 1984 requires two questions: what is a settlement, and what property is comprised in it. Section 43(2) supplies the definition for both questions, but does not itself prescribe a numerical aggregation exercise. Under the general law and section 43(2)(b), each trust deed was a separate settlement. Each comprised its own parcel of shares, rather than all shares settled by that brother.

3. The inclusion of dispositions by associated operations in section 272, read with section 268, did not alter that conclusion. The ordinary dispositions of shares into the five discretionary trusts were undisputed. The extended definition may catch an arrangement where it is disputed whether there was a relevant disposition at all. It cannot, without clear statutory language, be used to shrink the number of settlements that satisfy section 43(2), or to aggregate property comprised in discrete settlements.

4. The court found little assistance for the construction issue in the capital-gains-tax authorities cited by the Commissioners, including [1982] 1AC 279, [1983] STC 517 and [1989] 1 AC 159. Having approved Park J’s reasoning, the court declined to decide whether the arrangements were associated operations or what consequence that would otherwise have had. The appeal was dismissed with costs.

• Court of Appeal (Civil Division) Dismissed the Commissioners’ appeal and affirmed that each brother’s five discretionary trusts were separate settlements.

• High Court (Chancery Division) Park J allowed the trustee’s appeal in [2002] STC 872, holding that section 43 of the Inheritance Tax Act 1984 did not turn five settlements into one.

• Special Commissioner Dismissed the trustee’s appeals in [2001] STC (SCD) 225, holding that associated operations produced one settlement for the purposes of sections 43 and 64.