CHANCERY DIVISION]

DAWSON v. INLAND REVENUE COMMISSIONERS

See annotated Law Reports version at [

COUNSEL: Stephen Oliver Q.C. and J. R. Kessler for the trustee.      

John Mummery for the Crown.

SOLICITORS: Simmons & Simmons; Solicitor of Inland Revenue.

JUDGE: Vinelott J.

DATES: 1986 Oct. 16, 17; 1987 March 10

[*717] Case stated by a Commissioner for the Special Purposes of the Income Tax Acts.

Oliver Nainby Dawson, a UK resident, appealed against assessments to income tax under Schedule D. made on him for the year 1975-76 in his capacity as a trustee of three settlements notwithstanding that he was the only one of the three trustees of the settlements who resided in the United Kingdom and that the trust assets were located abroad and no funds were remitted to the United Kingdom.

On 6 November 1985 a single special commissioner decided the issue against the trustee and dismissed his appeal. The trustee appealed.

The facts are set out in the judgment.

Cur. adv. vult.

10 March. VINELOTT J. read the following judgment. This is an appeal by way of case stated from a single special commissioner by whom the appeal was heard by consent. It raises a short but difficult and important question as to the liability of a trustee who is resident in this country and who is one of a number of trustees the majority of whom are not resident in this country to tax on income of the trust derived from sources outside the United Kingdom.

The facts are fully set out in the case. A brief summary will suffice for the purposes of this judgment. I will start with the trusts governing the three funds from which the income in question was derived. First, by virtue of the joint effect of a settlement made by one Ephraim Cotton and dated 15 March 1946 and of an arrangement scheduled to an order made under the Variation of Trusts Act 1958 on 9 March 1966, a fund (“Gordon’s 1946 reversionary fund”) became held from the operative date defined in the arrangement, which occurred shortly thereafter, on trust for the issue of the settlor’s great nephew, Gordon Cotton (the son of the settlor’s nephew Jack Cotton) as he should by deed appoint and [*718] in default of appointment for his children who should attain 21 or if daughters attain that age or marry. In March 1966 Gordon had only one child, a daughter Eva who was born on 19 December 1964. Since then he has had two further children, both daughters, who were born on 21 August 1966 and 14 March 1973 respectively. During the fiscal year 1975-76 (which is the period to which the assessments under appeal relate) the power of appointment had not been exercised. There was then a remote possibility that the trusts in favour of Gordon’s children would fail. In that event Gordon’s 1946 reversionary fund would have been held, subject to any appointment in favour of his issue, on precisely similar trusts for the children and remoter issue of his two brothers, Derek and Jeremy, and his sister, Jill, with cross accruer between their respective shares. There was an ultimate trust on failure of all these trusts in favour of Gordon’s parents if they, or either of them, should survive the survivor of their four children, and if neither should survive for a named United Kingdom charity. The 1946 settlement contained a provision authorising the powers and discretions conferred on the trustees to be exercised by a majority, but that power was deleted by the arrangement.

Secondly, by virtue of a settlement dated 15 March 1957 made by Jack Cotton and of the arrangement, a fund (“Gordon’s 1957 reversionary fund”) became held with effect from 20 February 1967 on trusts in favour of Gordon’s issue which were similar in all respects to the trusts affecting Gordon’s 1946 reversionary fund with similar accruers in favour of the issue of Jack Cotton’s other children. On failure of all those trusts, which again was a remote possibility in 1975-76, Gordon’s 1957 reversionary fund would have been held subject to a power to apply the whole or any part to the same named charity on trust for an artificial class of next of kin of Jack Cotton ascertained as if he had died intestate and unmarried immediately after the death of the survivor of his children. The 1957 settlement contained a similar majority clause which was also deleted by the arrangement. During the fiscal year 1975-76 Gordon’s power of appointment in favour of his issue had not been exercised.

Thirdly, by a settlement dated 31 March 1965 and made by Gordon, a fund (“Gordon’s 1965 settlement fund”) was settled on wide discretionary trusts. The settlement contained first an overriding power of appointment exercisable until the expiration of a trust period, defined as the period commencing at the date of the settlement and ending at the expiration of 21 years from the death of the survivor of a class of royal lives and Eva, in favour of a defined class of “objects of the power.” That class was defined as including a narrower class of discretionary beneficiaries (Gordon’s children and their respective children and remoter issue and the spouses, widows and widowers of any of them), persons employed after the date of the settlement by Gordon or by any wife of his, three named individuals, and the children and more remote issue of his two brothers and his sister. During the fiscal year 1975-76 that power had not been exercised. In default of exercise of the power there was a power to accumulate income for 21 years and subject thereto a discretionary trust of income in favour of the discretionary beneficiaries and an ultimate trust of capital for the children of Gordon who should attain 21 or if daughters attain 21 or marry. Then on failure of all the foregoing trusts there was a trust for charitable objects or purposes at the discretion of the trustees. [*719]

In 1969 Gordon emigrated and became permanently resident with his family in Switzerland. At that time the appellant trustee, Mr. Dawson, and two other professional men both resident in the United Kingdom were trustees of each of the three funds. By deeds of appointment dated 12 February 1974 a Swiss bank and a Liechtenstein trust company were appointed trustees in place of Mr. Dawson’s co-trustees. He remained a trustee until 14 March 1977, when, by deed of that date, another Swiss banker was appointed in his place. Thus from 12 February 1974 until 14 March 1977 two of the three trustees of each of the three funds were not resident, and were also neither domiciled nor ordinarily resident, in the United Kingdom. During this period the funds or some of them comprised some small holdings of stocks and shares of United Kingdom companies and land in the United Kingdom. However, by far the larger part of each of the funds was invested in stocks, shares and securities of non-United Kingdom companies. Stock and share certificates were, at the direction of the trustees, registered in the name of a Swiss bank or in the name of nominees to its order and were held by that bank or by banks and recognised depositories in the country where the relevant companies were incorporated or resident. The income was paid into accounts of the trustees maintained for each of the three funds with the same Swiss bank. Distributions of income were decided at meetings of the trustees held in Switzerland.

The assessments under appeal are assessments for the year 1975-1976. They are based on the estimated income of the funds derived from sources outside the United Kingdom. During that year Gordon was paid 100000 Swiss francs out of the income of Gordon’s 1946 reversionary fund and 50000 Swiss francs out of the income of Gordon’s 1957 reversionary fund, in each case for the benefit of his infant children. The balance of the income and the whole of the income of Gordon’s 1965 settlement fund was accumulated. As can be seen from the foregoing summary of the trusts, in the case of Gordon’s 1946 reversionary fund and Gordon’s 1957 reversionary fund there was a remote possibility that the accumulated income would ultimately enure for the benefit of persons resident in the United Kingdom – the issue of Gordon’s two brothers or of his sister. In the case of Gordon’s 1965 settlement fund, although his children and any future member of the class of discretionary beneficiaries were clearly intended to be the primary beneficiaries, the accumulated income could have been applied in favour of the wider class of objects of the power, some of whom were resident in the United Kingdom.

The assessments under appeal are assessments to basic rate tax and to additional rate tax on the income from sources outside the United Kingdom. It is not in dispute that a trustee is not assessable to higher rate tax on income which accrues to him as a trustee and equally is not entitled to any personal reliefs or allowances given to individuals in respect of income accruing to them. It has always been accepted that although a trustee who is an individual may be assessable to tax as a person he is not assessable to higher rate tax which is charged on the total income of an individual and is not entitled to any relief or allowance afforded to an individual. Additional rate tax is chargeable in respect of income within any of the categories set out in section 16(2) of the Finance Act 1973 which is chargeable to income tax at the basic rate. It is therefore only necessary to consider those provisions of the Income Tax Acts which govern the charge to tax at the basic rate. [*720] Section 108, paragraph 1 of the Income and Corporation Taxes Act 1970 provides so far as material that tax under Schedule D.

“shall be charged in respect of – (a) the annual profits or gains arising or accruing – (i) to any person residing in the United Kingdom from any kind of property whatever, whether situated in the United Kingdom or elsewhere, and.. (iii) to any person, whether a British subject or not, although not resident in the United Kingdom, from any property whatever in the United Kingdom..”

That section must be read in conjunction with section 114(1), which provides that, subject to an immaterial exception,

“income tax under Schedule D. shall be charged on and paid by the persons receiving or entitled to the income in respect of which the tax is directed by the Income Tax Acts to be charged.”

The scope of the charge in section 108, paragraph 1(a)(i) is limited in the case of income arising from securities out of the United Kingdom (Case IV) or from possessions out of the United Kingdom (Case V) by section 122 of the Act of 1970. Under section 122(1) (as amended by section 23(7) of the Finance Act 1974) tax chargeable under Cases IV or V is to be computed on the income arising in the year preceding the year of assessment whether received in the United Kingdom or not. However, section 122(2) provides that subsection (1) is not to apply to any person who satisfies the Commissioners of Inland Revenue that he is not domiciled in the United Kingdom or that being a British subject or a citizen of the Republic of Ireland he is not ordinarily resident in the United Kingdom. In the excepted cases tax is charged by subsection (3) on the amounts received in the United Kingdom in the year preceding the year of assessment.

The Income Tax Acts, unlike the Capital Gains Tax Act 1979 and the Capital Taxes Acts, do not contain any comprehensive provisions dealing with the assessment of trustees. Part VII of the Taxes Management Act 1970 contains a number of provisions directed to specific situations. Under section 72 the trustee or guardian or a person who similarly has the control or management of the property of an incapacitated person whether resident in the United Kingdom or not is made chargeable to tax in the same manner and to the same extent as that person would have been chargeable if not under an incapacity; under section 73 the parent, guardian or tutor of an infant is made liable to tax in default of payment by the infant, and under section 74 the personal representative of a deceased person is made liable for tax chargeable on him. In all these cases the trustee, parent or personal representative is made chargeable as the representative and in place of the infant or the incapacitated or deceased person. Under section 75 a receiver appointed by the court with the control of property chargeable to tax is similarly made chargeable in the same manner and to the extent that the property would have been made chargeable if not under the control of the court. Section 76 exonerates a trustee who has authorised the receipt of the income of trust property by a beneficiary entitled thereto from any duty beyond making a return giving the particulars set out in section 13 of the Act.

None of these specific provisions provides for the case where the legal ownership of property is vested in a trustee who does not hold it [*721] on behalf of a person under an incapacity and who has not mandated the income to a beneficiary entitled to the income. The question whether in such a case the trustee is assessable as the person to whom the income accrues or whether the person, if any, beneficially entitled to the income is assessable was not answered until the decision of the House of Lords in Williams v. Singer [1921] 1 A.C. 65. That case arose as a result of the provisions of section 5 of the Finance Act 1914 which extended the charge under Cases IV and V of Schedule D. to the full amount of the income accruing, whether received in the United Kingdom or not, subject to a proviso in the terms now contained in section 122(2)(a) of the Act of 1970. Under the Income Tax Acts of 1842 (5 & 6 Vict. c. 35) and 1853 (16 & 17 Vict. c. 34), although income from property outside the United Kingdom accruing to a person resident in the United Kingdom was within the charge to tax in Schedule D, the amount of the income assessable was limited to income received in the United Kingdom.

In Williams v. Singer the trustees were resident and, as appears from the speeches in the House of Lords though not from the case stated, domiciled in the United Kingdom. The income of investments situate outside the United Kingdom was at their direction paid direct to the life tenant who was beneficially entitled to the income as it accrued and who was not resident, or domiciled or ordinarily resident, in the United Kingdom. The case for the Crown was that the income accrued to the trustees as the legal owners of the trust fund and that as they were resident here they were assessable to tax on it. Section 42 of the Income Tax Act 1842, which is reproduced with modifications in section 76 of the Taxes Management Act 1970 was not in point because that section as originally framed only applied where income was mandated to a beneficiary resident in Great Britain: see per Scrutton L.J. in the Court of Appeal [1919] 2 K.B. 108, 122; the construction and possible application of section 42 seems not to have been pursued in the House of Lords. The principles governing the assessment of trustees is set out in a passage in the speech of Viscount Cave which I should, I think, read in full. Having referred to section 41 of the Act of 1842 (which is reproduced, though not in its precise terms, in sections 72 and 73 of the Taxes Management Act 1970) and section 108 of the Act of 1842 (which until it was superseded by the Finance Act 1914 provided that tax in respect of profits or gains from foreign possessions or foreign securities might be charged on the trustee, agent or receiver receiving the same in default of the owner being charged in respect of them) Viscount Cave continued as follows, at p 72:

“And even apart from these special provisions I am not prepared to deny that there are many cases in which a trustee in receipt of trust income may be chargeable with the tax upon such income. For instance, a trustee carrying on a trade for the benefit of creditors or beneficiaries, a trustee for charitable purposes, or a trustee who is under an obligation to apply the trust income in satisfaction of charges or to accumulate it for future distribution, appears to come within this category; and other similar cases may be imagined.

“The fact is that if the Income Tax Acts are examined, it will be found that the person charged with the tax is neither the trustee nor the beneficiary as such, but the person in actual receipt and control of the income which it is sought to reach. The object of the Acts is to secure for the state a proportion of the profits chargeable, and [*722] this end is attained (speaking generally) by the simple and effective expedient of taxing the profits where they are found. If the beneficiary receives them he is liable to be assessed upon them. If the trustee receives and controls them, he is primarily so liable. If they are under the control of a guardian or committee for a person not sui juris or of an agent or receiver for persons resident abroad, they are taxed in his hands.”

In the instant case there can be no doubt that if the appellant trustee had been a sole trustee of the three funds he would have been liable to be assessed on the income accruing from them whether derived from property within or without the United Kingdom. The question is whether the appellant trustee as the only one of the trustees who was resident in the United Kingdom, can be separately assessed. The commissioner, having cited part of the passage in the speech of Viscount Cave which I have cited and a passage in the judgment of Finlay J. in Kelly v. Rogers [1935] 2 K.B. 446, 451, where he pointed out that there was no reason to restrict the principle governing the liability of a trustee to tax on the income of the trust property “to English income, or to income which arises in this country, or which arises under an English trust, or anything of that sort,” answered this question in favour of the Crown on the ground that

“As joint tenants the trustees are jointly and severally owners of the trust assets and entitled to the whole of the income arising from them. Each trustee is chargeable, in principle, on the full amount of the income provided that he is resident in the United Kingdom.”

Mr. Mummery did not seek to support that reasoning. Although there may be cases where it is appropriate to describe persons in whom property is vested as “jointly and severally entitled” to the property, for instance, if they are beneficially entitled as tenants in common, trustees as such, that is, apart from any beneficial interest they may have, are jointly and not severally entitled to the trust property. No one of the trustees is entitled to call for the income to be paid to him. The case for the Crown in this appeal is that any one of several trustees has control of the trust income, unless a beneficiary is indefeasibly entitled to it as it accrues, because, in the absence of a majority clause, the income must be paid to or put under the control of the trustees and cannot be dealt with without the concurrence of each of them. It was said that that degree of control, which Mr. Mummery described as “negative control,” is sufficient to bring any one of several trustees within the principle stated by Viscount Cave and to make him assessable to tax. Mr. Mummery submitted in the alternative that each of several trustees is entitled to the income in the sense of having a claim to it within section 114(1). I hope I have accurately summarised Mr. Mummery’s submissions. I confess that I have experienced some difficulty in understanding them.

In the passage from Williams v. Singer [1921] 1 A.C. 65, 72 which I have cited Viscount Cave explains the circumstances in which trustees are and the circumstances in which they are not assessable to tax in respect of income which accrues to them as the legal owners of the trust property. His observations were not directed to the question whether, where income which accrues or arises to trustees as the legal owners of their trust fund does not arise from the profits of any trade carried on by them and does not belong as it accrues to any beneficiary indefeasibly [*723] entitled to it, an assessment can be raised against any one of their number. The case for the Crown in Williams v. Singer, at p. 66, was that the trustees

“as the legal owners of the property concerned, are the persons to whom the annual profits or gains arose and accrued therefrom within the meaning of Schedule D. of section 2 of the Income Tax Act 1853 and are similarly the persons receiving or entitled to the profits under the general rule in section 100 of the Income Tax Act 1842.”

It was not suggested in argument or in any of the speeches in the House of Lords or in any of the judgments in the courts below that if there had been no beneficiary entitled to the income as it accrued an assessment could have been raised against any one of the trustees, and indeed the proposition that if there had been no beneficiary entitled to the income the trustees would have been jointly assessable as the persons in control of the income seems to have been accepted: see, for instance, the speech of Lord Wrenbury, at p. 75.

The real issue in this case as I see it is whether, where income from property situate outside the United Kingdom accrues or arises to trustees and one of the trustees is resident outside the United Kingdom, the income falls within the charge to tax in paragraph 1(a)(i) of section 108 of the Act of 1970. In the absence of any context to the contrary “person” must be read as including “persons.” If paragraph 1(a)(i) is expanded to read “the annual profits or gains arising or accruing to any person or persons residing in the United Kingdom” it is to my mind quite plain that where income accrues and is paid to two or more trustees as the legal owners of the property from which the income is derived the trustees are not chargeable as such (that is, if none of them is beneficially entitled to the income or any part of it) unless they are all resident in the United Kingdom. The question therefore is whether there is anything else in the Income and Corporation Taxes Act 1970 which evidences a contrary intention excluding the prima facie rule that “person” should be read as including “persons” and an intention that in the circumstances I have described any one of the trustees resident in the United Kingdom is to be chargeable on the whole of the income. No contrary intention can be inferred from the provisions of paragraph 1(a)(i) of section 108 alone: it is capable of being read in the way I have indicated. The only other relevant provision is section 122(2)(a). That section appears to be framed on the assumption that it will be possible to say of any person within the charge to tax in paragraph 1(a)(i) that he is or is not domiciled in the United Kingdom, or that if he is a British subject or a citizen of the Republic of Ireland he either is or is not ordinarily resident in the United Kingdom. It is not easy to see how section 122(2)(a) is to be applied if income accrues to two trustees both resident in the United Kingdom one of whom claims to be domiciled outside the United Kingdom and the other to be a British subject or a subject of the Republic of Ireland and not ordinarily resident in the United Kingdom: nor whether, if there are two trustees both resident in the United Kingdom one of whom is within and the other of whom is without section 122(2)(a) that one, without 122(2)(a), is assessable to tax on unremitted income. It is unnecessary to consider these questions and I express no opinion on them. It is quite clear if sections 108 and 114 are construed in the light of the earlier legislation which they replaced [*724] that section 122(2)(a) cannot be resorted to as a guide to the scope of the charge.

Paragraph 1(a)(i) and section 144(1) do not differ materially from the corresponding provisions of the Income Tax Act 1842. Section 1 of that Act brought within the charge to duty in Schedule D. the “annual profits or gains arising or accruing to any person residing in Great Britain from any kind of property whatever, whether situate in Great Britain or elsewhere.” Section 100 provided that the duties so charged should extend to every description of property or profits not contained in Schedule A, B, or C and to every description of employment not contained in Schedule E and should be “charged annually on and paid by the persons, bodies politic or corporate, fraternities, fellowships, companies, or societies, whether corporate or not corporate, receiving or entitled unto the same.” The Act of 1842, of course, was passed long before the enactment of any general Interpretation Act. However, section 192 of the Act of 1842 provided that reference to any person should be understood to include several persons unless there was something repugnant to that construction.

The Income Tax Act 1842 reintroduced the income tax for a period of three years. It was subsequently extended. In 1853 it was supplemented by the Income Tax Act of that year. Section 1 of the Act of 1853 provided that after 5 April 1853 there should be charged for the years there mentioned duties at the rates specified in respect of, among other things, “the annual profits or gains arising or accruing to any person or persons whatever residing in the United Kingdom from any kind of property whatever, whether situate in the United Kingdom or elsewhere,” and those words were repeated in every subsequent taxing Act: see per Lord Phillimore in Williams v. Singer [1921] 1 A.C. 65, 80. Section 2 then set out the schedules under which the duties were to be charged. Schedule D. was in the same terms so far as material as section 1 of the Income Tax Act 1842 save for the substitution of references to the United Kingdom for references to Great Britain. Section 10 of the Income Tax Act 1853 extended the provisions in the Act of 1842 for assessing and charging the duties imposed by the Act of 1853, including section 100. The provisons of the Act of 1853 as amended were reproduced in the Income Tax Act 1918: the charge to tax under Schedule D. in section 2 of the Act of 1853 was reproduced in paragraph 1 of Schedule D, and the provisions as to the persons assessable in section 100 of the Act of 1842 were reproduced in rule 1 of the “Miscellaneous Rules applicable to Schedule D,” taken in conjunction with the definition of a “body of persons” in section 237. There was a change in the pattern of the legislation in the Income Tax Act 1952. The charge to tax under Schedule D. was reproduced in paragraph 1 of section 122 and the provisions as to the persons assessable in section 148. There is no reference in section 148 to “bodies of persons,” but section 362(1) provided: “Every body of persons shall be chargeable to tax in like manner as any person is chargeable under the provisions of this Act.” That modification clearly did not affect the scope of Schedule D. beyond making it explicit that the charge in section 2 of the Act of 1853 extended to profits and gains accruing to a body of persons resident in the United Kingdom. Paragraph 1 of section 122 of the Income Tax Act 1952 is, of course, now paragraph 1 of section 108 and section 148 is section 114(1). Section 362(1) is reproduced (with amendments to take [*725] account of the introduction of corporation tax) in section 71 of the Taxes Management Act 1970.

It is quite clear that section 5 of the Act of 1914 did not affect the scope of the charge in section 2 of the Act of 1853 but only the basis of the assessment of the income within the charge. In Williams v. Singer [1921] 1 A.C. 65, 75 Lord Wrenbury observed that the effect of section 5

“would seem to be only that where there is a person chargeable in respect of income arising from foreign securities he is to be charged not as the Act of 1842 had provided upon so much as is received in the United Kingdom but upon the full amount whether received in the United Kingdom or not.”

The scope of the charge in the Income Tax Act 1918 to Schedule D. tax in paragraph 1 of Schedule D. and in rule 1 of the “Miscellaneous Rules applicable to Schedule D” was clearly no wider than the scope of the earlier provisions which were replaced: the Act of 1918, like the Acts of 1952 and 1970, was a consolidating Act.

At first sight Pool v. Royal Exchange Assurance [1921] 1 A.C. 65 which was heard together with Williams v. Singer, appears to afford some support for the proposition that one of two trustees can be separately assessed to tax on income accruing to the trustees. The facts in that case were similar to the facts in Williams v. Singer except that (as appears from paragraph 2(a) of the case stated, which is set out in 7 T.C. 387, 394) first, although there were two trustees both resident and domiciled in the United Kingdom only one of them, Royal Exchange Assurance, was assessed, and, secondly, the income in question was paid to the New York office of Royal Exchange Assurance and then paid over to the life tenant. In Williams v. Singer, of course, the income was paid at the direction of the trustees direct to the life tenant. However, the case stated records an agreement between the parties that “the assessments under appeal shall not be impeached on the ground that the name of one of the trustees is omitted:” see 7 T.C. 387, 390. At the time when the appeal to the special commissioners was heard this formal defect, if it was a defect, could no doubt have been cured by a further assessment. The question whether the assessment was impeachable on this ground was not adverted to in the House of Lords or in the courts below. In the Court of Appeal counsel for the taxpayer in Williams v. Singer [1919] 2 K.B. 108, 112 submitted that in making the assessment in Pool v. Royal Exchange Assurance the commissioners had deliberately adopted section 53 of the Act of 1842 and that under section 53 the trustees were taxed only as representatives of the person beneficially entitled, who in that case as in Williams v. Singer was resident and domiciled outside the United Kingdom. It is unnecessary to examine the provisions of section 53 at length. So far as I have been able to discover it was not repeated in the Act of 1918. It provided for a return by and the assessment of a trustee for a person under an incapacity or outside Great Britain in respect of profits or gains on which that person was chargeable. It is of some significance that while that section envisaged that one of several trustees might be assessed in certain circumstances it provided expressly that if more than one assessment should be made relief should be given against the double assessment. In the instant case, if the Crown’s case were well-founded some similar provision would [*726] have to be implied to avoid assessments in respect of the same income being made on more than one of the trustees.

In Pool v. Royal Exchange Assurance [1921] 1 A.C. 65 the suggestion that the assessments should be treated as made under section 53 (and that Royal Exchange Assurance was charged in a purely representative character for a person resident and domiciled abroad) was not considered. However, in Pool v. Royal Exchange Assurance Royal Exchange Assurance would clearly have been liable to be assessed if it or the trustees together had been in control of the income. The trustees to whom the income accrued were both resident and domiciled in the United Kingdom and the income was actually received by Royal Exchange Assurance. Indeed, it may well be that the income would have been liable to be assessed simply on the ground that it was received by Royal Exchange Assurance and so accrued to it. As I understand it, where income is by agreement of the trustees paid to one of their number (for instance, where there are a number of family trustees and one professional trustee and the income is mandated to him) the trustee who receives the income is normally assessed on this ground. The question, however, in Pool v. Royal Exchange Assurance, as in Williams v. Singer, was not whether Royal Exchange Assurance could be separately assessed but whether trustees could be assessed on income from property outside the United Kingdom which belonged beneficially to a person resident and domiciled outside the United Kingdom.

Mr. Mummery submitted that a decision that where one of several trustees is resident outside the United Kingdom no assessment can be made in respect of income accruing and paid to the trustees from sources outside the United Kingdom would open the door to widespread avoidance. It would be open, he said, to the trustees of a trust under which all those entitled or likely to become entitled to any beneficial interest were resident and domiciled or ordinarily resident in the United Kingdom to avoid United Kingdom tax altogether by the expedient of appointing a single non-resident trustee and investing the trust fund in investments outside the United Kingdom. Indeed, United Kingdom tax would be avoided even if the income were paid into an account of the trustees in the United Kingdom or remitted to beneficiaries in the United Kingdom. Mr. Oliver’s answer to this submission was that the Crown have had wide powers ever since section 18 of the Finance Act 1936 was enacted to counteract the avoidance of tax by means of the transfer of assets abroad and that those provisions – since replaced by sections 45 and 46 of the Finance Act 1981 – apply as well to the appointment of one trustee resident outside the United Kingdom to act jointly with trustees resident in the United Kingdom with a view to the investment of the trust fund outside the United Kingdom as they do to the replacement of all the trustees by trustees resident outside the United Kingdom and the transfer of the trust assets to them. Whether sections 45 and 46 would apply in the one and not in the other case is a question which has not been argued and on which I express no opinion. If the result of this decision is to leave a gap for unacceptable avoidance that gap must be closed by legislation.

Mr. Mummery’s submission, if well-founded, would give rise to the more striking anomaly that even in the case of a trust constituted outside the United Kingdom by a settlor domiciled and resident outside [*727] the United Kingdom and comprising investments situate wholly outside the United Kingdom and established for the benefit of foreign subjects resident and domiciled outside the United Kingdom (or for public or charitable purposes outside the United Kingdom) if one of the trustees became resident in the United Kingdom he would fall within the charge to United Kingdom tax provided of course that the income did not belong beneficially to a beneficiary resident and domiciled outside the United Kingdom, and subject also so far as concerns income not remitted here to the exception in section 122(2)(a) of the Income and Corporation Taxes Act 1970. The trustee resident in the United Kingdom would be so assessable notwithstanding that he had not himself received the income and even if under the law governing the trust he had no right of recourse against the trust assets and no right of contribution from his co-trustees. I understand that in practice the Crown have not sought to tax a trustee resident in the United Kingdom on income from property out of the United Kingdom if the majority of the trustees are resident outside the United Kingdom and the fund was settled by a person domiciled outside the United Kingdom. Mr. Mummery accepted that if the Crown’s contentions as to the scope of section 108, paragraph 1(a)(i) and section 114(1) are well founded there can be no justification for that extra-statutory amelioration of the law.

In the instant case the Crown is, in effect, asserting the right to tax a person resident in the United Kingdom solely on the ground of residence on income from property outside the United Kingdom in which he has no beneficial interest and over which he has no control, and to do so notwithstanding that he may have no right of recourse to the income on which he is assessed to tax and no right of indemnity or contribution against the income or from the persons beneficially entitled to it. In my judgment the very clearest language would be required to justify a claim as wide as that.

For the reasons I have given I think this appeal must be allowed.

Appeal allowed with costs.