Thorpe v HMRC

The Saunders v Vautier principle can apply to a pension trust, but only where all possible beneficiaries are identified, sui juris and together entitled to the whole beneficial interest. A member cannot terminate the trust and demand the fund merely because he is the only current member or would receive benefits on retirement. Contingent interests under the scheme rules remain relevant. A challenge to the Revenue’s withdrawal of approval on public-law grounds must be brought by judicial review unless the statutory appeal provisions confer the necessary jurisdiction. The statutory appeal against an assessment under section 591C did not permit such a challenge. The withdrawal of approval was, in any event, rational and justified.

The appellant was the sole director, shareholder and employee of a company that operated an exempt approved pension scheme. After his wife’s death, he became the scheme’s only member. He sought to withdraw the whole fund as cash, relying on Saunders v Vautier, although the scheme rules provided for retirement benefits and possible benefits for a widow or dependants.

The Special Commissioner dismissed his appeal. The High Court dismissed the main appeal but allowed an appeal on other assessments. The appellant appealed to the Court of Appeal on two issues: whether he was absolutely entitled to the fund, and whether the Revenue’s later withdrawal of approval was invalid on public-law grounds and could be challenged in the statutory appeal.

1. Appeal dismissed. The appellant was not absolutely entitled to the whole pension fund. The Saunders v Vautier principle may apply to a pension trust, but it requires all possible beneficiaries to be identified, of full age and capacity, and together entitled to the whole beneficial interest.
2. At the material time, the fund was held to be applied under the scheme rules. The appellant had not retired when he demanded payment. On death in service, benefits could have been payable at the trustees’ discretion to children or grandchildren. Remarriage or the emergence of dependants could also create relevant interests. Those contingent benefits arose under the trusts of the scheme, not merely contractually. Payment of the whole fund to the appellant would therefore have been a breach of trust.
3. Retirement would not have altered the result. It would have entitled the appellant to select benefits permitted by the rules, including the maximum tax-free lump sum and an annuity. It would not have entitled him to take the entire fund as cash.
4. The statutory appeal did not provide a basis for challenging the Revenue’s discretionary withdrawal of approval under section 591B(1) on public-law grounds. The availability of a public-law defence in Pawlowski v Dunnington did not establish jurisdiction in this statutory appeal. The court left open whether the position might differ where approval ceased automatically under section 591B(2), because no decision of the Board would then be involved.
5. On the merits, the conduct concerning the scheme and its administration was capable of being considered under section 591B(1). The Revenue was not required to take account of the contingent beneficiaries’ interests, the appellant’s motives, or to warn him before withdrawing approval. The reasoning in the withdrawal letter was pertinent, rational, justified and legitimate. The assessment under section 591C was therefore justified.
6. Lord Justice Lloyd gave the judgment, with Lord Justice Dyson and Sir Scott Baker agreeing.

• Court of Appeal (Civil Division): [2010] EWCA Civ 339; appeal dismissed.
• High Court, Chancery Division: Sir Edward Evans-Lombe dismissed the main appeal on 26 March 2009.
• Special Commissioners: appeal dismissed in a decision released on 19 May 2008.