Supreme Court Rules Gift to Jersey Trust Exempt from IHT

Posted On: 22 Oct 2019

The Supreme Court of the United Kingdom has ruled in the case of Routier & Venables v HMRC that a gift by will to a Jersey charitable trust is exempt from UK Inheritance Tax.

Beryl Coulter passed away in October 2007, leaving her UK estate of £1.8 million to a trust set up to build homes for the elderly in Jersey, where Mrs Coulter lived. Leaving the gift to a trust written under English law, HMRC accepted, would have been exempt. However, they argued that such an exemption applied only to UK charities and, as such, the UK estate was liable for an IHT bill of almost £600,000.

The executors of Mrs Coulter’s estate asked the Supreme Court to consider two issues: first, whether Jersey constituted a ‘third country’ for the principle of free movement of capital between European Union member states and third countries. The England & Wales Court of Appeal had previously ruled that Jersey was a third country for these purposes, and the Supreme Court confirmed this position.

Second, having established that the EU principle of free movement of capital should be respected, the justices were asked to consider whether HMRC’s restriction on free movement was justified on this instance. HMRC had asserted that the IHT exemption applied only to charitable trusts subject to the jurisdiction of the UK courts, relying on an interpretation of a 1956 decision by the House of Lords in the case of Dreyfus.

The Supreme Court rejected HMRC’s assertion and, in doing so, overturned earlier judgements of the High Court and Court of Appeal. The judgement confirmed the taxpayers’ view that HMRC’s imposition of a restriction on the EU principle of free movement of capital in this case was unlawful.

It has been a long-held understanding by many UK advisors that gifts to charity are exempt only if that charity or charitable trust is registered or subject to the laws of the UK. Routier & Venables therefore provides an important point of order that this assumption cannot be taken as read where it would constitute a breach of law. Although the UK’s departure from the EU, currently scheduled for 31 October, may make the implications of this judgement somewhat moot for future gifts and legacies, this judgement is nonetheless an important clarification on the scope of HMRC to restrict free movement of capital.

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