Barclays Wealth Trustees (Jersey) Ltd & Anor v The Commissioners for HMRC

For the purposes of section 48(3) of the Inheritance Tax Act 1984, a settlement ordinarily remains a single trust settlement, even where property is added by several dispositions. The relevant time is normally when the trust was first constituted. Where section 81 deems property transferred between settlements to remain in the first settlement, that deeming ceases to operate once the property is actually returned to that settlement. The property then falls to be considered under section 48(3), rather than section 82. Foreign property representing assets originally transferred when the settlor was non-UK domiciled may therefore remain excluded property despite an intermediate transfer between settlements.

The appellants were the trustee and settlor of a Jersey discretionary settlement. Assets originally transferred into that settlement while the settlor was non-UK domiciled were later transferred to a second settlement, converted into cash, and returned to the first settlement shortly before its first ten-year anniversary. The cash was then held in Jersey.

HMRC determined that the cash was relevant property subject to a periodic inheritance tax charge. The appellants appealed. The High Court dismissed their appeals in [2015] EWHC 2878 (Ch). The central issue was whether the cash was excluded property under sections 48, 81 and 82 of the Inheritance Tax Act 1984.

1. Appeal allowed. The Court of Appeal held unanimously that the cash representing the original Qserv shares was excluded property immediately before the ten-year anniversary.
2. Section 81(1) applied when the shares moved from the 2001 Settlement to the Dreelan Brothers Joint Trust. For Chapter III purposes, the shares and their proceeds were deemed to remain in the first settlement. While they were in the second settlement, they were not excluded property because they were initially UK property and the settlor was UK-domiciled when that settlement was made.
3. Once the property was appointed and transferred back to the 2001 Settlement, the deeming effect of section 81(1) was spent. The property was no longer property to which section 81 applied for section 82(1). The question therefore depended on section 48(3).
4. The statutory definition of settlement in section 43(2) was naturally read as covering a single settlement constituted by several dispositions, including later additions. The ordinary understanding of trust practitioners was relevant. The Court applied the approach in Rysaffe Trustee Co (CI) v IRC [2002] EWHC 1114 (Ch), approved on appeal in [2003] EWCA Civ 356. The 2001 Settlement was made when the settlor first constituted it in 2001, while he was non-UK domiciled.
5. Alternatively, even if the 2011 Appointment were treated as a separate settlement, section 81 prevented the property from being both deemed to have remained in the first settlement and treated as the subject of a fresh disposition into it.
6. The Court regarded the facts as unusual and expressed no view on cases involving substantial later transfers into an offshore settlement after the settlor had acquired UK domicile. The taxpayers’ appeal was allowed.

• Court of Appeal (Civil Division): The appeal was allowed unanimously. The Court held that the cash was excluded property and overturned the High Court’s conclusion.
• High Court of Justice, Chancery Division: Mr Justice Mann dismissed the taxpayers’ appeals in [2015] EWHC 2878 (Ch).