Overseas Chambers of Peter Harris

Maison de la Boucterie
Rue de la Boucterie
Saint Saviour
Jersey, JE2 7ZW

40. Clause 73 of Finance Bill 2020: Back to “Au bon Beurre”, or a slippery interpretative slope for HMRC? Tax Professionals: your choice.

July 28th 2021

In relation to retroactive legislation, the following was said in Parliament in relation to the 2020 Excluded Property amendments to s 48(3) ITA 1984 by which it is pretended to simply 'clarify' the law, by which is, of course HMRC's interpretation of the law. That interpretation was never convincing and which the Court of Appeal came close to rejecting it absolutely in Barclays Wealth (Jersey) v. Commissioners [2017] EWCA Civ 1512. Henderson LJ who handed down the judgment  appeared as Counsel for the Revenue in his life prior to his elevation to the Bench, so it can hardy be said, even by a politician, that he was unaware of the law.

More precisely, on the subject of retroactivity, redubbed "retrospective" for the occasion the statements made by the, as yet unknighted Jesse Norman, the Financial Secretary to the Treasury regarding the amendment to s 48 (3), in the seventh sitting discussion of the Finance Bill, were little short of eye-wateringly crasse:

'The hon. Lady asks whether this measure is retrospective. As she will be aware, we do not believe that it is retrospective. The key point is that HMRC's application of the legislation, and therefore the legal position, was widely accepted in practice before the Court of Appeal decision put that position in doubt […]

The effect of it is going to be that individuals have been liable [sic] to the tax owed in the spirit of the legislation […]

The hon. Lady asks whether there should have been more consultation. As I outlined in my speech, the Government have had this in the public domain for a considerable period and discussed it, with plenty of occasion for people to conform their tax affairs to what is, after all, only a reaffirmation of existing tax law through legislation …'

What complete twaddle! Which ghoul are we talking about? The unwritten one that wasn't mentioned and "clarified" in the Committee minutes?

", and therefore the legal position" : HMRC is not a lawmaker.

…Widely accepted in practice…? … Before the Court of Appeal put that position in doubt …?

There was apparently no recorded reaction from the Honourable Lady, which means either that she fainted on the overpowering rhetorical eloquence of the rt. Hon Norman or was left frankly spineless.

How did we get here?

Or rather how was s.48(3) of the IHTA 1984 missapplied prior to the unanimous decision of the Cour of Appeal in of Barclays Wealth Trustees (Jersey) Limited and another v. Commissioners [2017] EWCA Civ 1512?

The Court of Appeal 's decision in Barclays Wealth went into a fairly clear description of the result of the changes in 2006 concerning what are now Relevant Property Settlements, which thereafter include certain types of interests in possession in settled property. The judgment was very clear that the notion of a settlement was oneof law and not one to be snatched out of the ether by a Treasury civil servant.

Despite the fact that s.43(2) ITA 1984 defining a settlement and settled property refers to "disposition or dispositions" in its first paragraph, defined by reference to a), b) as being held in trust, not in anything else and c) following, HMRC have extended the interpretation of the same phrase in the next paragraph, in other words with the same meaning to include what they refer to as "trust-like arrangements" which are have no trust content, and are legal right in rem in foreign property as comprising settled property.

One example is HMRC's unremittingly unlawful treatment of the French usufruit in land in France. It goes without saying that you cannot have a trust of French land in the same manner as you cannot have a settlement under the law of any part of the United Kingdom without a trust (Lord Wilberforce Roome and Denne v Edwards Tax Cases Vol 54 359 at page 389 §G). The view is in fact complete rubbish.

That falsehood had been tolerated by City law firms prior to the 2006 relevant property régime, but only on the basis that they could massage a Treaty credit through for a deferred French payment of succession duty on what would otherwise have been a dry succession to the point where the falsely extrapolated "settlement" could be treated as ending in a chargeable transfer out of the initially deceased's fictional estate.

The assumption has since been that that treatment, which in any other country would be treated as no more than as an administrative tolerance within a limited factual and legal context, into a something which for HMRC has now become law, by silence, bar the few who contest it.

The answer is that, unlike the current Lords of the Treasury and its Financial Secretary, Lord Justice Henderson knew the law and therefore what he was addressing. In introducing "views" or other subjective psychological processes into their behavioural analyses of taxpayer reaction, HMRC and the Financial Secretary to the Treasury appear to have lost touch with the reference points in their own language. It is now at the point where, despite continuing warnings from the Tax Tribunals and the Courts to the contrary, they and the First and Second Lords of the Treasury are assuming that the views expressed in their manuals are "law", on what amounts to a "pre-crime" basis without a defined criminal offence.

A previous advisor to a Labour Government, not in this case a SpAv, had mentioned to his disciples that the Common law changes slowly, this may have been his remedy to that familiar constitutional state of affairs. Parliament is a creation of the common law stemming from Runnymede, the lack of jurisdiction by the Great Seal over the Marcher Lords and then the Statute of Westminster which guaranteed free elections to it.  By way of historical anecdote, the Herald carrying the writ to the Welsh Marches was forced to eat it, or at least the Great Seal attached to it.

Firstly HMRC has no right to impose its "views" as if they were statute where the statutory provision or hook upon which their view is to be hung does not permit or admit their view. Has anyone tried placing twice the design weight of wet overcoats on an alloy clothes hook? So much for that singularly stupid statement: "only a reaffirmation of existing tax law through legislation". "Views" are not law to be reaffirmed. If they were not law beforehand the views are only reaffirmed as law as from the date of hte statute.

Is that not what the Courts are there for, to interpret the statute by reference to the law and clarify it by applying it correctly? Certainly Henderson LJ who gave the Court of Appeal Judgment in Barclays Wealth appeared on several occasions for and against the Revenue in tax cases, so it can hardly be said that he did not know what the law actually was, as the somewhat pusillanimous statement from Jesse Norman attempted to imply.

I am not sure whether one of psychological bent or training would view it as sociopathic or merely psychopathic; schizophrenic or simple plain paranoia to assume as a constitutional norm that one organisation's own ideas are accepted by everyone else, without their having been communicated clearly by and what is more within the actual law initiating these.

"Clarification" of the law, means that the law was not clear. If the law is not clear, the tax it seeks to impose is not collectable in the cases where the lack of clarity is of advantage to a given taxpayer, or more aptly here a non-taxpayer.

Put in another language, that in which the celebrated "au bon Beure" is writ, beurre clarifiée -clarified butter- or ghee can be cooked at a higher temperature only because one of its essential ingredients - milk protein or in French Caséine has been removed

For those unwashed in French culture, "au bon Beurre" was a book written and a film about a family of French collaborators running a black market operation from a crémérie who transformed themselves into resistance heroes on the arrival of the allied forces in 1944.

Other commentators have said that whether HMRC appreciate the wide-ranging effects the proposed change to s 48(3) will have on the application of the RPR and the GWR rules is extremely doubtful. Certainly, apart from gifts to settlements made by domiciled / deemed domiciled settlors, the scenarios which will apparently be caught by the change do not appear to have been within HMRC's declared sights during any consultation.

Be very aware of what is going to happen next, in the context of the settlement régime certainly over the next few years. HMRC should not be able to substitute its "views" for the law with impunity.

An example, the term "disposition or dispositions" appears twice in the statutory definition of a settlement for IHT purposes s.43(2) ITA 1984, and is limited to trusts in succession or by contingency by a), accumulation by b) and annuities by c). Yet despite the House of Lords as they then were, stating what is a simple matter of English law, that you cannot have a settlement without a trust, HMRC have been playing tax professionals that the term "dispositions or dispositions" can include non-trust arrangements under foreign civil laws without applying the legal requireemnt of classification inherent in the phrase "law of any part of the United Kingdom".

To cite Rudyard Kipling a contrario: "Watch the writing on the wall, my darling, as the Gentlemen from Revenue and Customs go by." If you don't read it correctly, you are likely to be surprised and found wanting at the "outcome", biased as it will inevitably be.