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A moment of Clarity

Routier & Venables v HMRC: The definitive answer on Jersey charitable trusts?

This autumn the Court of Appeal will hand down its judgment in Routier & Venables v HMRC, which will either clarify the law on whether inheritance tax exemptions apply to charitable trusts in Jersey or have the case referred to the European Court of Justice.

Irwin Mitchell Private Wealth has appealed the original judgment that the executors of Mrs Coulter’s estate, Peter Routier and Christine Venables, must pay nearly £600,000 in inheritance tax.

Upon Mrs Coulter’s death in 2007, her UK estate, valued at £1.8m, went to a trust to build homes for the elderly in Jersey. HMRC agree that if this were a trust governed by UK law it would be free of inheritance tax, but claim that Mrs Coulter’s Jersey-based trust does not qualify. Two appeals by the executors failed in 2014 and 2016, but a new argument has been proposed by Irwin Mitchell Private Wealth.

There are two key issues: first, whether Jersey counts as a ‘third country’ under the EU’s freedom of movement principle, and secondly, if Jersey is indeed a ‘third country’, whether the HMRC’s restrictive interpretation of the inheritance tax relief is justified.

The Attorney General of Jersey has intervened in the case. Like Irwin Mitchell Private Wealth, he argues that Jersey must be considered a ‘third country’ so that under EU law the UK is prohibited from restricting the free movement of capital without an acceptable justification.

Anthony Nixon, a Tax, Trusts and Estates Partner at Irwin Mitchell Private Wealth who is leading the case, explained further: “The executors of Mrs Coulter’s will are challenging their liability for inheritance tax as they believe that this decision constitutes an unlawful and unjustifiable restriction on the free movement of capital between European Union member states and third countries under the EU treaties, and that Jersey is a third country for these purposes.

“The Jersey Government has now joined in to support our argument. Mrs Coulter lived in Jersey and we believe that the inheritance tax exemption for trusts that are clearly charitable should apply in Jersey as it does in the UK. We are grateful to the judges for hearing our clients’ case and now await the judgment.”

But what if the Court of Appeal defers to the European Court of Justice? It is not outside the realm of possibility, explains Anthony. “If a particular point in the case needs clarifying then the Court of Appeal might refer the case to the ECJ, adding an extra year to the timeline on finding out the judgment.

“Brexit won’t have any effect on this case because it focuses on the law in 2007, when Mrs Coulter died. The 2010 changes for IHT that were made to make it more EU-compliant won’t have any bearing on this case, though in future the freedom of movement of capital principle might see some significant changes.”

Whatever happens with the case, it is sure to be precedent-setting and Irwin Mitchell Private Wealth awaits the latest judgment with interest.

Published: 21 September 2017

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