Hugh Murphy & Anor. v The Commissioners for HMRC

An HMRC extra-statutory concession is construed objectively by reference to what an ordinarily sophisticated taxpayer would reasonably understand from its published terms. It is not construed as legislation, and undisclosed HMRC practice cannot affect its meaning.

ESC B18 (1999) created a distinct concession for a UK-resident beneficiary of a non-resident discretionary trust. The stated conditions of that concession were exhaustive. It gave credit for tax actually paid by trustees without imposing a six-year limit on when the trust income arose.

The appellants were UK-resident beneficiaries of a Guernsey-resident discretionary trust. Its trustees had paid UK income tax on UK-source income. When the trust fund was distributed in 2019, the appellants claimed credit under ESC B18 for tax paid on income arising throughout the trust’s life.

HMRC allowed credit only for income arising within the preceding six years. The Administrative Court dismissed the appellants’ judicial review: [2021] EWHC 1914 (Admin). The appeal concerned whether Concession 3 in ESC B18 (1999), governing UK beneficiaries of non-resident trusts, carried that six-year income limit.

Appeal allowed

1. The Court unanimously allowed the appeal. ESC B18 (1999) clearly entitled a UK-resident beneficiary of a non-resident trust to credit for UK tax actually paid by the trustees, without a six-year limit on the age of the underlying income.

2. The concession had to be construed as an ordinarily sophisticated taxpayer would reasonably understand it. Its text strongly showed that Concession 3 was freestanding. The paragraph beginning with a UK beneficiary of a non-resident trust set out its own comprehensive conditions. It did not repeat the six-year condition that was expressly imposed on Concessions 1 and 2.

3. Concession 3 extended the credit mechanism in section 687 of the Income and Corporation Taxes Act 1988. That mechanism had no six-year income limit. It differed from the look-through relief in section 809, to which the six-year condition was central. The express reference to section 687 therefore materially supported the absence of such a limit.

4. Potentially less favourable treatment of non-resident trusts under HMRC’s construction was relevant contextual confirmation. Earlier versions of ESC B18 did not displace the natural reading of the 1999 version. Nor could an undisclosed administrative practice affect the objective meaning of the concession. Public manuals, guidance or practitioner commentary might matter in another case if they would have alerted the ordinarily sophisticated taxpayer to a settled HMRC practice.

• Court of Appeal (Civil Division): Allowed the appellants’ appeal and reversed the construction adopted below: [2023] EWCA Civ 497.
• High Court, King’s Bench Division, Administrative Court: Dismissed the judicial-review claim, holding that ESC B18 imposed a six-year limit: [2021] EWHC 1914 (Admin).