September 2015 HMRC Trusts and Estates Newsletter Usufruits

I am bemused that none of the lawyers querying the position of HMRC in relation to Usufruits appears to have spotted the deliberate mistake made in the September 2015 Trusts and Estates Newsletter:

“Since April 2013, HMRC has dealt with a small number of cases where the estate included a usufruct…”

A prize for the first eagle eyed lawyer who spots it…?

Assistance may be found at article 617 Code civil …

They omitted to mention that one executor who was a nue-propriétaire whom I advised was both a French avocat and an English Barrister, and was having no truck with that nonsense.

Peter Harris
Overseas Chambers

A usufruit ceases to exist upon the death of the usufruitier. The event
of death results in the nu-propriétaire automatically becoming the owner
of the full rights in the property.

Lee Harris

Turner Hopkins, New Zealand

Does it take a Harris from the other side of the planet to spot it? We are unrelated.

Apparently so.

Extinction means that there is nothing left at the moment of death and in the instant before it a value less than 1p.

How does one administer a trifle or a nothing under s 43 (2) ITA 1984?

With some difficulty, I understand.

Peter Harris

The answer is simple, the English Courts consider only administration to be an issue of the lex fori, and the definition and qualification of the material substance of the property right to be a question for the foreign law, not the English Court which will do its level best to recognise its effects and not attempt to transmogrify the foreign law into an unrelated and entirely different English concept. That was settled in Dreyfus TC vol. XIV (1928-1929) p 560.

The 1984 Inheritance Act’s approach to administration has to follow that route of thought and analysis, as effectively it is the Court of Probate that decides what administration is, and what it is not.

Where there is a foreign property right such as an usufruit, that is recognised as of right as being governed by the lex situs , as per Dreyfus, and if I may venture to suggest even through Rowlatt J forcibly approved by Lord Hanworth and the entire Court of appeal who put the energetic Counsel for the predecessors of HMRC firmly in his forcible place.

There is simply no authority for HMRC to allege that there is administration in France when there is no such thing there. How does one, even within their unreal world, “administer” a foreign legal property right which no longer exists?

Were it a usufruit dismemberment to be a foreign trust or trust arrangement over property under the law governing it which reduced the property to a form of equitable entitlement as against a trustee under the foreign law, such as an American or New Zealand trust as opposed to a carve out, then s 43 (2) ITA would be relevant and rightly so. However even HMRC admit that it is a non-trust arrangement.

In the case of a carve out into separate property rights without foreign administration, HMRC’s position simply lacks any foundation or authority. They are and remain unable to provide any authority for their extravagant position, which eludes even the learned Baron Gilbert’s Standing Committee A’s statements in 1975.

That is confirmed by the Standing Committee A’s minutes of February 17th 1975, in which the learned Baron stated in response to an opposition objection that what is now the last paragraph of s 42 (2) ITA 1984 was merely intended to apply to entities such as Lichtenstein foundations and anstalts which are inherently “administered”. Property rights were not mentioned by the Baron as being affected. Strange how elementary and simple concepts slip over time like a brass rubbing , isn’t it?

Curious how no one is attacking HMRC or rather the Treasury Solicitor on this fundamental issue of jurisdictional analysis by reference to old authority on the English Court’s assessments of its own competence to recognise foreign property rights and apply them as such, in cases such as Dreyfus which are perfectly clear.

The reason why HMRC settle before going to court is simply that the court, if approached properly, despite Memec, will look to its own jurisdictional analysis as to what is recognised as substance, and what is considered mere “adminstration”, and,will respond clearly that there is no means of assuming “administration” of a non-existent property right as a matter of the lex fori, where there is none in the foreign arrangement.

Peter Harris