CGT Annual Exempt Amount for Trusts

I seem to have provoked a sleeping giant.

In my defence, I was merely attempting to draw Ray’s attention to the existence of the Explanatory Memorandum which he may not have seen and, if so, that it may have been of value to his considerations wrt express trusts etc. I had not intended to suggest that its content resolved beyond doubt the issues we were discussing and apologise if this is how it read.

Having said this you say “While a court or tribunal would doubtless hold its contents to be inadmissible or irrelevant with a modicum of respect, the legal standing of such a document and its probative value to the forensic process is on a par with a newspaper horoscope or a bus ticket… …Judicial methodology for interpreting primary and secondary legislation is well settled and it is a myth that any deference is shown to third party opinions about the meaning of law simply because they emanate from a Minister, Government Department or even, as here, the Parliamentary draftsperson”.

Whilst the bus ticket reference made me smile (as an aside are bus tickets still issued???) I suggest the view expressed as to legal standing is wide of the mark.

Lord Steyn in Westminster City Council v National Asylum Support Service [2002] UKHL 38 commented"

“The question is whether in aid of the interpretation of a statute the court may take into account the Explanatory Notes and, if so, to what extent………there is no need to establish an ambiguity before taking into account the objective circumstances to which the language relates. Applied to the subject under consideration the result is as follows. Insofar as the Explanatory Notes cast light on the objective setting or contextual scene of the statute, and the mischief at which it is aimed, such materials are therefore always admissible aids to construction. They may be admitted for what logical value they have. Used for this purpose Explanatory Notes will sometimes be more informative and valuable than reports of the Law Commission or advisory committees, Government green or white papers, and the like. After all, the connection of Explanatory Notes with the shape of the proposed legislation is closer than pre-parliamentary aids which in principle are already treated as admissible:…. "

Back in the early 1990’s the Hansard Society stated “There should be Explanatory Notes on Statutory Instruments to explain their purpose and effect …The courts should be allowed to use … Explanatory Notes on SIs as an aid to interpretation”.

Malcolm Finney

The giant on this Forum, which regrettably, is only too regularly awake, is a widespread tendency to seek to interpret legislation, primary or subordinate, by reference to a variety of sources, not all of equivalent value, if any, and some decidedly inappropriate.

The task of a Court or Tribunal is to determine from the words of the legislation what Parliament intended. This is to be be done principally from those words themselves. But sensible rules have been adopted to allow consideration of “extraneous” materials for particular purposes and in particular circumstances. These can include departmental guidance and even Hansard. Reference to Hansard has only been permitted relatively recently and still subject only to the self-imposed limits laid down in Pepper v Hart. I hope it is therefore understood that it is not permissible to use the most erudite and comprehensive explanation of the meaning of a statute supplied in Hansard unless that case allows it.

I cannot repeat here the detailed analysis set out in a practitioners’ textbook. I use Craies on Legislation but others are available. But I would urge all those who advise on the meaning of legislation to be familiar with the principles of statutory construction. We might then be able to reduce some of the “whataboutery” flavour of some of the variegated aids to construction put forward on this Forum. I read still dozens of Court and Tribunal decisions every week and applaud how sure-footedly they apply these principles. The adviser’s task is to emulate them.

Lord Steyn’s quoted speech is in fact obiter but is accepted as a significant judicial observation on the issue. It needs to be read in full. He is referring to Explanatory Notes attached to a Bill. While those attached to an SI (explicitly not part of it) and an Explanatory Memorandum, which accompanies relatively few SIs, serve a similar purpose (to assist Parliamentarians) they by contrast are not drafted by Parliamentary Counsel but by departmental lawyers. I suggest that if you read sufficient of each type you may conclude that there is a big difference in quality.

Lord Steyn concluded “What is impermissible is to treat the wishes and desires of the Government about the scope of the statutory language as reflecting the will of Parliament. The aims of the Government in respect of the meaning of clauses as revealed in Explanatory Notes cannot be attributed to Parliament. The object is to see what is the intention expressed by the words enacted.” A fortiori, in my opinion, with an SI Explanatory Memorandum.

The classic approach is still that of Lord Nicholls in ex parte Spath Holme Limited [2001] 2 AC 349:
“Statutory interpretation is an exercise which requires the court to identify the meaning borne by the words in question in the particular context. The task of the court is often said to be to ascertain the intention of Parliament expressed in the language under consideration. This is correct and may be helpful, so long as it is remembered that the ‘intention of Parliament’ is an objective concept, not subjective.
The phrase is a shorthand reference to the intention which the court reasonably imputes to Parliament in respect of the language used. It is not the subjective intention of the minister or other persons who promoted the legislation. Nor is it the subjective intention of the draftsman, or of individual members or even of a majority of individual members of either House.
These individuals will often have widely varying intentions. Their understanding of the legislation and the words used may be impressively complete or woefully inadequate. Thus, when courts say that such-and-such a meaning ‘cannot be what Parliament intended’, they are saying only that the words under consideration cannot reasonably be taken as used by Parliament with that meaning.”

Nor is it the subjective intention of the anonymous author of an SI Explanatory Memorandum, especially where the text employed raises a prima facie issue either about the author’s grasp of legal principle or their grotesque corruption of it in the semi-laudable cause of dumbing it down for the unfortunates of the Statutory Instrument Committee.

Jack Harper

Ray,

What HMRC say is only of interest, considerable interest, but what matters is what the SI says and what a Court would decide.

As a commentator I can only offer this view. “Express trust” is not a defined term. It comprises, of course, two ordinary English words but which have a highly developed technical meaning in the law of trusts, though bearing in mind that each legal jurisdiction of the UK has its own such law. Subject to that wrinkle I suspect a court would arrive at a single UK definition of “express trust” close to its technical meaning.(In my view it cannot have a different meaning in each jurisdiction, draftsman please note, 8 out of ten)

The list in Schedule 3A is a list of “carve-outs”: non-taxable “express trusts” which are covered in principle but are to be excluded from registration. It is not conclusive that a trust created by a statute is an express trust within Reg 42 even though the draftsman clearly thought it was and understood that his instructions required it to be excluded, albeit selectively. I happen to think a trust created by a statute, and there are many, is an “express trust” and so is one within Reg 42 and that if “Parliament” wishes to carve one or more out it must do so by enumerating them generally or specifically as excluded. A trust within s42 LTA is not listed in Sch 3A to “remove doubt”: it is there because otherwise there would be no doubt at all and “the intention of Parliament” is that such a trust should not in law be registrable as an express trust if it is not a relevant taxable trust. (Schedule 3A only applies to a trust within Reg 45ZA (1)).

And I discern this “intention of Parliament” from the words of the statutory instrument itself, without reference to the author of any Explanatory Memorandum, or promulgation of HMRC, while acknowledging that the definitive legal meaning of “express trust”, being undefined, necessarily remains open to court judgment as does the precise application of any paragraph of Schedule 3A to the facts of any given case. My reading of TRSM 23110 is not that HMRC are saying that s42 trusts “are not regarded as express trusts” but, on the contrary, that they are so regarded but are excluded from registration. What HMRC say these days is vital for advisers to know but also to be prepared sometimes to encounter as self-serving disinformation or just wrong. Here I agree with it. But it is not the law until a proper court of lawful jurisdiction has adjudicated on the point finally without possibility of further appeal.

Jack Harper

If a S.42 Trust is an express trust the trustees have to comply with regulation 44 and register if they become taxable. Some blocks of flats will have sizeable sinking funds, and even for the smaller ones, there is no de minimis. I wonder if they are all aware of this issue.

Ray Magill

The general awareness of the tax obligations of funds both within and outside s42 must surely be, by now, part of the compliance fabric. TSEM 5700 is in the public domain. In this regard I sometimes despair of the excuses offered by those to whom, apparently, the idea that income or similar might actually be taxable had simply never occurred. Yeah, right!

I do agree that the information campaign as regards TRS of non-taxable trusts, and the stuttering introduction of the rules and their “clarifications”, has been truly appalling, given that capture widely extends to lay trustees who would otherwise have no reason to take advice, the cost of which, though objectively fair, will seem disproportionate. The problem lies in the unspoken assumption underlying all AML legislation: that all the peoples of the world are criminals and it is just that they have not all been caught yet.

Jack Harper

I should have added that the term “express trust” must be interpreted to embrace and identify non-UK trusts; and presumably also whether a foreign concoction is a “trust” at all, like a usufruct or foundation. It is complex enough deciding just whether such foreign things are transparent or opaque (INTM180030) but no worries I am sure at HMRC, the infallible fons et origo of taxonomy as well as of tax.

Jack Harper

Many S.42 LTA trusts will only have modest amounts of taxable income.

TSEM5700 says 'If the total tax liability is less than £100, and the only source of income is bank and building society interest then no return is required’.

Taking those words at their clear meaning, it surely only means that no tax liability will be pursued, not that the trust is exempt.

Thus, if a S.42 trust is an express trust, does that mean the trust will be ‘taxable’, even if the tax chargeable is trivial? Including them as excluded in Sch.3A will not shield many of them from having to be registered.

Ray Magill

Jack,

I think that some help can also be found in relation to such foreign law “arrangements”, for want of a better term, as usufructs and foundations in the Recognition of Trusts Act 1987. Assistance can even be found in relation to the ubiquitous Scottish Proper Liferent ….

s.1 (1) “The provisions of the Convention set out in the Schedule to this Act shall have the force of law in the United Kingdom.”

Barring the hissing of an Ugly Duckling, if it doesn’t land with a thump - or a big splash - within the Schedule to that Act, it is not a trust under English law or for that matter the law of any part of the United Kingdom.

If I recall correctly, there are those in Cambridge whose charge it is to school swans in landing safely in or on the breeding meadows around Coe Fen.

I am sure that HMRC are taking their responsibilities very seriously, the law as set out in the Schedule to the Act is there to assist them in carrying them out.

Peter Harris

I would not care to rely on the TSEM concession (as it surely must be, given the source was a Newsletter announcement) for TRS. Not only is the TRS not tax legislation at all, its precise purpose is disclosure and contains no theme of threshold amounts for registration of any type of trust. The fact that both systems are administered by HMRC does not change my mind.

Jack Harper

Peter,

I am much obliged, comme on dit. I am keeping the draftsman’s rating at 8/10. If he or those instructing him thought of the point I am a Dutchman, Mynheer, or, as it might be, a Duckling of the first part if not a swan of the second.

Jack Harper

I agree, TSEM is not the law. My point is that, even if it were accepted as something one could rely on to avoid a penalty, the wording does not affect the trust’s status as ‘taxable’, if that is relevant.

Ray Magill

It’s all water of an unconscious duck’s back anyway, Jack.

Even if it were the law it would be tax law not AML law.

Jack Harper