The Supreme Court today handed down judgment in a rare and important Inheritance Tax (IHT) case which has wide-reaching consequences for taxpayers and charities in the UK, Jersey and worldwide.
The Court allowed the appeal by trustees of a Jersey charitable trust who had claimed IHT relief on a gift of UK property (worth £1.7m) to the Jersey charitable trust. This exempted the charity from a claimed UK IHT charge of nearly £600,000. HMRC had sought to deny charity tax relief, claiming it was only available on gifts to domestic UK charities. In a unanimous decision, the Supreme Court disagreed, saying that such a restriction on charity tax relief (which dated back to the Dreyfus case in the 1950s) was unlawful as a matter of EU law.
A number of important points arise from the Supreme Court’s decision, including:
- Jersey cannot be treated as part of the UK for free movement of capital purposes under the EU Treaty;
- Consequently, the UK cannot tax movements of capital between the UK and Jersey if to do so would be illegal under EU law;
- As long as a gift of UK property is for charitable purposes only under the law of any part of the UK, it does not matter where in the world that charity is located, and the charity does not have to be subject to the jurisdiction of UK courts;
The Supreme Court’s decision is relatively brief when compared with the Court of Appeal decisions which it overturned. As such, it raises a number of new questions. Perhaps the most important of these is whether HMRC might seek to justify limiting charity tax relief to jurisdictions with which the UK has in place a treaty on the exchange of tax information. However, given that the Supreme Court’s decision was silent in this regard (meaning that it did not form part of its reasoning) and because it expressly overruled – and criticised – the Court of Appeal for entertaining that question, one may fairly assume that HMRC could not lawfully seek to impose such a restriction.
This decision represents an important victory for taxpayers and charities faced with an intransigent and out-dated refusal by HMRC to give tax relief for charitable gifts to non-UK charities. However, because the Court decided only to deal with the EU law aspects raised by the case, and not to deal with the parallel domestic law points, the longevity of the judgment will of course turn on the outcome of the Brexit negotiations.
A fuller analysis of the Supreme Court’s decision and its implications will follow.