The comments on the post have been amended on the TDF Website to include a more detailed analysis of the consequences of the changes subsequent to the Finance Act 1969 to the English/Scottish law dichotomy in inherent in s.43(2) ITA .
Under Estate Duty, HMRC were blocked from asserting English trusts over land over civil law immovable property rights abroad by the distinction drawn between in England and Scotland in section 34(5)(a)(i)(bb) FA 1996 “… if it had been regulated by the law of England or, as the case may require, of Scotland.” This was their reaction to Philipson-Stow. HMRC later seems to have attempted to extend the law of England to civil law jurisdictions by referring to a deemed regulation by “the laws of any part of the United Kingdom” in the later development in 1975, which of course was not indicated to Parliament: why be transparent, it’s only an Act of Parliament.
At no time in the 1969 legislation were Scottish Proper Liferents treated as “settlements” as such, they could not be, merely as a distinct and exceptional form of settled property. They were addressed specifically at s.36 (2) FA 1969 which added s.2(1)(g)(ii) to FA 1894. The UK Parliament has jurisdiction in fiscal matters over Scotland, and was able to pull that constitutional rabbit out of its united crown. It has no such jurisdiction over foreign land, which should be treated as it is and how it devolves, not as what it is not. Calais is no longer written on the Crown’s heart. For that matter, neither was land in Hanover for those interested in ¨Parliamentary sovereignty" or rather the lack of it outside the United Kingdom.
At that point in time, 1969, there was no manner in which a French usufruit dismemberment could be considered to be either a settlement or settled property. It was only by the underhand and undisclosed compression of Scotland into the United Kingdom in FA 1975, which was noticed by the opposition members of Standing Committee A, but to which the Government avoided giving any indication or even a reply that it was “viewed” by HMRC to extend English concepts of settlement of land to the entire planet. H%RC are extremely uncomfortable about dealing with concepts of foreign property law, and make little effort to carry out their common law duty of analysis as laid down in Dreyfus v IRC
HMRC should be held to an interpretation of the wider “regulated by the laws of any part of the United Kingdom” as being to the laws of Scotland in the context of a foreign civil law, and certainly in relation to foreign civil law immovable rights not held in express trust. However, as the section refers to the laws of any part of the United Kingdom, that means and includes the Conflict and Private International Law of each “part” and its jurisdictional limitations on its ability to “regulate”, The LPA 1925 does not apply to land outside the United Kingdom, neither did the Settled Land Act, nor TolATA
In short, either Dr Gilbert lied by omission to Standing Committee A in 1975, or HMRC have deliberately gone beyond the intention and what is more the jurisdiction of Parliament in compiling their current “view”.
That is why the issue of the massaging of the tax credit system under the treatment of the usufruit granted by will or on death pre-2006 as an IIP, evacuated by its subsequent replacement by a relevant property régime was wrong and should be treated as no more than an administrative tolerance.
It is also a reason why legal professionals are now feeling uncomfortable with relevant property régime being applied to such dismemberments. The property taxation does not match the laws of property applicable. It is at the point where purely French transactions, between a French family over French land are now being hamstrung by the potential presence of a family member in the United Kingdom. Jurisdiction creep.
The Common Law and indeed common sense dictates that the law of the land determines the property rights as to that land, not some half-cocked foreign elucubrations as to the doctrine of conversion being the elexir of fictional comparative law.
The civil law of Scotland should have been applied to its classification, even within the concept of “the laws of any part of the United Kingdom” and the French immovable right should be been charged at its real value on death i.e. nil as it extinguishes and cannot be succeeded to (there is no transfer of value). It is also why any disposals within the seven years preceding death should be given their French valuation, and not treated as a transfer of the whole property, as HMRC are currently attempting to argue.
In effect, even were the PIL, Conflict and jurisdictional rules to have been excluded by the deliberate reference to the laws of England or as the case may be to those of Scotland in the 1969 amendment, the Usufruit was still not entrammelled in the definition of a “settlement” owing to the fact that the Scottish Proper Liferent was addressed separately as an indigenous exception. It did not catch the French usufruit, certainly one over land,
The “laws” referred to in s.43(2) §2 ITA do not include fictions contained in the Tax Acts. For HMRC to assert a right to undo and remake foreign law à sa guise, a right which it does not enjoy within the UK, is abusive.
In arguing the allocation of the “regulating” not “governing” law to the laws of any part of the United Kingdom, HMRC effectively shot itself in both feet, because in so doing it introduced the conflict, jurisdictional and PIL of the law of the part of the Untied Kingdom concerned. In England’s case, that includes the common law as was set out in Phillipson-Stow which effectively states that if you do not have an express trust over foreign land it remains an immovable right in rem outside the settlement régime, no matter what.
HMRC’s compliance officers are still waxing eloquent upon the notion of “United Kingdom law” rather than that of any part of the United Kingdom without realising that they are stepping on common law landmines.
What is more, their reliance upon Memec is entirely missplaced, as Memec was a case on the interpretation of the German Treaty. Reading the CA judgment it is clear that it has no relevance to the case of a usufructuary property dismemberment, the actual common law as to the recognition of foreign entities and rights set out in the Case of Dreyfus Vol XIV (1929) p.560 on the Commissioners duty to give full effect to the foreign legal concept, and not to attempt to abuse comparatives simply to bring an otherwise untaxable item into charge still applies. Forgive the Inn humour, but if the Court of Appeal stated that Rowlatt J. got it right, can it be wrong?
Peter Harris