David Peter Herman & Barbara Herman v Revenue and Customs Commissioners (SpC 609) (2007)


The amounts transferred to the appellants from a personal settlement had been received "indirectly" from the trustees of a family settlement for the purposes of the Taxation of Chargeable Gains Act 1992 s.97(5)(a).


The appellants (H), a married couple, appealed against their capital gains tax assessments for the year 2001-2002 by the respondent Revenue. In November 1990, H created a non-resident family settlement of which H and their family were beneficiaries. The settlement gave successive life interests to H with an overriding power of appointment exercisable in favour of "beneficiaries", who included H and their family. The trustees of the settlement subscribed for shares in a company. Between 1990 and 1998, the shares were sold, realising substantial gains of about £2 million. The gains were "stockpiled" and not released as capital payments. In 1997, a Guernsey company (M) became trustee of the family settlement. H consented to M's suggestion of a tax avoidance scheme to mitigate tax on the stockpiled gains. On February 4, 2002, Mr H created a United Kingdom resident settlement (the personal settlement) of which he and Mrs H were beneficiaries and trustees. Later that month, the trustees of the family settlement, having borrowed money and purchased a holding of Treasury stock, appointed the Treasury stock, the cash and the benefit of an unsecured loan from Mr H to the trustees of the personal settlement. On March 28, 2002 the trustees of the personal settlement appointed all of the trust assets to H in equal shares absolutely. It fell to be decided whether the "trust gains" for the year 2001-2002, which included the stockpiled gains of about £2 million, were to be treated as chargeable gains which accrued to H. The Revenue contended that the amounts received by H on March 28, 2002 were to be regarded as received "indirectly" from the trustees of the non-resident family settlement under the Taxation of Chargeable Gains Act 1992 s.87(4) and s.97(5)(a). H contended that s.87(4) and s.97(5), properly construed and in the circumstances of the instant case, could not produce that result.


The amounts transferred to H from the personal settlement on March 28, 2002 were received by H indirectly from the trustees of the family settlement for the purposes of s.97(5)(a). M's plan comprehensibly involved the entire contents of the family settlement as it stood (less expenses and less amounts appointed to the children's settlement) being transferred to the trustees of the personal settlement and then on to H free of charges to capital gains tax. In particular, the plan was designed to leave the trust gains of the family stranded off-shore; and to avoid the impact of any corrective legislation the scheme had to be completed before the 2002 budget. M's tax team had devised and masterminded the scheme. Their implementation went beyond looking after the interest of the family settlement. M could be seen to have planned and implemented the arrangements leading to the receipt by H of the funds originating from the family settlement. As far as the trusts were concerned, every step in the implementation of the plan was related. The transfer from the trustees of the family settlement to the personal settlement was in process of a properly exercised power for the benefit of H as the intended recipients of the amounts transferred. H were aware of the plan and had agreed to the adoption and implementation of the plan at every stage. The outcome was intended though not necessarily pre-ordained. That outcome was the release of the funds originating from the family settlement to H absolutely. To conclude otherwise would be shutting one's eyes to the obvious.

Appeal dismissed