Routier & Anor v Revenue & Customs

For charity relief from inheritance tax, the expression “held on trust for charitable purposes only” in section 23(6) of the Inheritance Tax Act 1984 requires the trust to be governed by United Kingdom law and subject to the jurisdiction of United Kingdom courts. The expression must be read in the context of the whole exemption, including the distinction between its two limbs, the statutory definition of charity, legislative history and practical administrative difficulties. A foreign-law charitable trust therefore does not qualify merely because its purposes are charitable under English law. The court upheld the High Court’s conclusion on that issue. The separate issue under Article 63 TFEU was not decided and was left for further directions.

The appellants were the executors of Beryl Coulter, who was domiciled in Jersey. Her will placed the residuary estate on trust to construct homes for elderly residents of St Ouen or, in default, to assist Jersey Hospice Care. HMRC determined that the executors were liable for inheritance tax on United Kingdom assets in the estate.

Rose J dismissed the executors’ appeal against that determination: [2014] EWHC 3010 (Ch). The Court of Appeal considered whether the trust qualified for the charity exemption under section 23 of the Inheritance Tax Act 1984, despite being governed by Jersey law. A separate issue concerned whether the construction advanced by HMRC infringed Article 63 TFEU.

1. Lord Justice Kitchin gave the substantive judgment, with which Lord Justices Tomlinson and Moore-Bick agreed. The first issue was resolved in HMRC’s favour. Section 23 of the Inheritance Tax Act 1984 contains two limbs: the first concerns property becoming the property of charities, and the second concerns property held on trust for charitable purposes only. The appellants accepted that the first limb required a trust governed by United Kingdom law, in light of Camille and Henry Dreyfus Foundation Inc v IRC, reported at [1954] 1 Ch 672 and [1956] AC 39.

2. The same territorial limitation applies to the second limb. The provision must be read as a whole. The appellants’ construction would give the second limb a materially wider scope than the first and would create unexplained distinctions between foreign incorporated charities and foreign trusts. The practical difficulties of administering a worldwide exemption also supported the narrower construction.

3. The structure of section 23 was significant. Section 23(1) is the primary exempting provision and refers to “charities”, a term defined by section 989 of the Income Tax Act 2007 in terms requiring a United Kingdom link. Where the defined phrase is ambiguous, the words chosen by Parliament may illuminate its meaning. The wider use of “trust” elsewhere in the Act did not control the context-specific phrase in section 23(6).

4. Rose J therefore reached the correct conclusion: the Coulter Trust was not within the second limb because it was governed by Jersey law and subject to Jersey, rather than United Kingdom, jurisdiction.

5. The court did not determine the Article 63 TFEU issue. The parties had been unable to develop their submissions at the hearing. They were invited to agree and propose directions for the disposal of that issue.

• Court of Appeal (Civil Division): resolved the statutory charity-exemption issue against the executors and left the Article 63 TFEU issue for further directions.
• High Court, Chancery Division: Rose J dismissed the executors’ appeal against HMRC’s inheritance-tax determination: [2014] EWHC 3010 (Ch).