The Supreme Court, in a judgment handed down on 16 October 2019, ruled that the late Beryl Coulter’s generous gift to fund housing for the elderly community on her home island of Jersey is exempt from inheritance tax (IHT).
This overturned previous decisions by the High Court and (in two separate judgments) the Court of Appeal that the IHT exemption didn’t apply because the charity had no connection with the UK.
When Beryl Coulter died aged 84 in 2007, the extent of her wealth came as a complete surprise to everyone. As she had lived most of her life in the UK before retiring to Jersey with her husband, her estate included substantial assets both in the UK and in Jersey after she had made some very savvy investments. After leaving some specific legacies, it was her wish that the whole of her residuary estate should be used to build homes for the elderly in the Parish of St Ouen in Jersey.
Beryl specifically chose Peter, the son of her family friends, as one of executors, and wrote him a letter explaining that she had confidence in his ability and common sense to ensure her intentions under her Will were carried out.
She was very specific in her donation and adamant that the money would be used for charitable purposes to build homes for the elderly population in Jersey, and not used to purchase the land for the build.
IHT doesn’t apply to charitable donations within the UK but because Beryl’s gift was for charitable purposes in Jersey and governed by Jersey law , HM Revenue & Customs (HMRC) said that the executors of her estate had to pay £600,000 in IHT.
Working with our Tax, Trusts and Estates and Litigation teams, including Clementine Burch and Paula James, the executors of Beryl’s Will, one of who was Peter Routier, disputed HMRC’s decision that IHT should be payable in these circumstances. They argued that they shouldn’t pay IHT on the gift as it was a charitable donation under English law.
What then ensued was a legal battle with HMRC resulting in various hearings before finally ending in the highest Court in the land, the Supreme Court.
What the Result Means
The court hearings for this case spanned over a number of years, culminating in October 2019 and the decision of the Supreme Court that IHT didn’t apply to Beryl’s estate and the donation in Jersey.
The Charitable Will Trust has been managed by Irwin Mitchell’s Trust Administration team and Beryl’s multi million gift is now available for the purpose Beryl intended.
This means that the Parish of St Ouen can now use all of Beryl’s residuary estate without any IHT deductions to build homes for the elderly in Jersey. The decision means that IHT exemptions for trusts that are clearly charitable should apply in Jersey as it does in the UK, and means similar gifts to Jersey trusts or charities may benefit from the result of Beryl’s case.
The Background to the Case
When Beryl died in 2007, her residuary estate was gifted to a trust to build homes for the elderly in Jersey. HMRC’s position was that IHT was payable on the gift because the charitable trust did not have sufficient links with the UK and in particular it was governed by Jersey law and was not subject to the supervision of courts in the UK and so did not qualify for exemption from IHT. The usual rule in all parts of the UK is that IHT is not charged on charitable gifts.
Representing executors of the Will in question, our experts brought an appeal to the Supreme Court to challenge the Court of Appeal’s decision. The Court of Appeal, agreeing with HMRC, had decided that a restriction to UK charities was justified by the need for “effective fiscal supervision”, because at the time there was no agreement in place between the UK and Jersey to cooperate with one another. HMRC’s interpretation was based on a case called “Dreyfus” which came before the Supreme Court’s predecessor, the House of Lords, in 1956. The House of Lords decided in that case that the word “charity” could apply only to bodies of persons or trusts established in the United Kingdom.
The Supreme Court deliberated on two key issues:
- Was Jersey a ‘third country’ under the EU’s core principle that there should be no barriers to the freedom of movement of capital from a member state to a third country
- If Jersey was indeed a ‘third country’, whether HMRC’s restrictive interpretation of the IHT relief was justified.
The Supreme Court agreed with the Court of Appeal’s decision that Jersey was a “third country”, so that the principle of free movement of capital must be applied. However, the Supreme Court went on to overrule the Court of Appeal’s second finding that HMRC’s restrictive interpretation was justifiable, agreeing with our experts that it wasn’t right to apply a restriction. This meant that Beryl’s gift was free from any IHT.
This was a fantastic result for Beryl’s executors, and after a long fight, Beryl’s estate is free of tax and can all be used for the elderly in her Jersey parish, exactly as she wished.
Beryl’s final resting place is in the cemetery of St Ouen’s parish church in Jersey and the Parish Assembly are working to deliver her vision with the help of her multi million pound gift.
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