Those listening to the debates on 3rd September in the House of Commons will recall an interesting discussion on the principle of legitimacy. That was also evoked by Lord Sumption in the latest Reith Lecture in his discussion earlier in the afternoon  about power, its exercise and the law.

Taking that point further, I have long been concerned about the fact that no analysis of the scope of application of the definition of a settlement to foreign immovables was made in Standing Committee A in 1975, or in the later Scottish Proper Liferent amendment, despite the question having being raised generally at §1735. Whilst it was permissible to override the land law of a nation within the United Kingdom, in this case Scotland,  it certainly was not outside it, without conquest or settlement. The Government spokesman, Dr Gilbert, later Baronised in the true Labour tradition,  in fact made noattempt to warn the Committee as to any intention of HMRC to override the common law restriction on Parliament and for that matter on the Courts having no jurisdiction to adjudicate settlements, fictional or otherwise over foreign immovable property rights where there was no trust. The change from the equivalent defintion in s.36 FA 1969 Finance Act to the current one in Schedule 4 cluse 1 to FA 1975 and s.43(2) ITA 1984 was simply not commented upon.

That is a blatant breach of the common law principle of legitimacy, as HMRC are either extending the effect of s.43(2) ITA beyond what Parliament actually intended ad was able to do, or worse deliberately obscure their intention to override the common law, upon which their supremacy in national matters depends, as set out ably by their Lordships in Philipson-Stow to which I have referred in an earlier post.

Whilst certain experts decided to use the French treaty as a mechanism fo avoiding dry succession, using the French facility to defer payment of the French succession duty on a usufructuary right granted under a succession, enabling a credit against a deemed settlement assessment in the UK, that was discriminatory in relation to any lifetime gift of a nue-propriété of an immovable to children, one example. Is what only amounts to a tolerance in interpretation now to be converted into an opaque form of parallel statute?

Again that is hardly "legitimacy" if that was Parliament's intention rather than a falsehood by omission from or by HMRC or the Treasury.

The usufruit issue at the date of writing was apparently being taken to the First Tribunal, and either Mr. Key or  Mr. Davidson or their successor, Mr David Camidge of HMRC has attempted to harden the Manual up as a final bastion by using the term "fiction". I understand advice might now have been taken from a Treasury lawyer on the latest wording of the manual However, HMRC have aparently backed off for fear of losing hold of the fiction that they have created.

HMRC's view appeared to have been strengthened earlier, by views from city firms seeking to impose a fictional fiscal structure within the context of the 1963 Estate Duty Treaty with France. Given the change to the relevant property régime the view proffered at that time is no longer tenable or workable.

I stress that the treatment of a usufructuary dismemberment inter vivos or on death is perfectly assessable as a division of property into separate rights at law, with an extinction at nil vale of the usufruit on death, rather than their inequitable conversion into movable equity by the Revenue.

Perhaps the Revenue have been misguided into believing that in levelling the playing field in Scotland, where the Parliament has fiscal jurisdiction over property rights further afield  to Europe and elsewhere, where it has none, was permissible in the same manner as their current crusade on contractors, ably repulsed by Keith Gordon. However, neither Parliament nor the Courts have any jurisdiction to impose settlements on foreign immovable rights and property by way of fiction, whether under any principle of illegitimacy by non-disclosure, or otherwise.

What is even more questionable is the difference in treatment of the Scottish Proper liferent, the nearest Brotish equivalent,  as a pure real property right rather than a personal life Interest in the Capital Gains legislation which entirely contradicts the IHT position.

What Brexit has done, and it is about time, is to have shown that pure political power cannot be easily equated with the law. Lord Sumption makes that point more clearly than I can. The only legislative pretogative that Parliament has is provided for by the law, not by Parliament which itself is a creature of the law of the nations making up the United Kingdom.  Parliament is necessarily bound by the limits of the Common law and its capacity to be judicially enforced. It is not capable of functional enforcement in France and the executive, i.e. HMRC cannot legitimately  construe a statute to have effect outside the jurisdiction over foreign immovable properfty, as distinct from movable property on the basis of what is in effect a fiction which it has generated itself.

Peter Harris

www.overseaschambers.com