Revenue

Inheritance tax - transfer of assets into discretionary settlement - effective to reduce value of settlor's estateMelville and Others v Inland Revenue Commissioners: ChD (Lightman J): 20 June 2000

The settlor transferred assets to trustees of a discretionary settlement.

The settlement conferred on the settlor after 90 days a right 'to direct the trustees to transfer the whole of the trust fund to the settlor absolutely'.

Determinations were made on the settlor and the trustees by the Revenue on the basis that for inheritance tax purposes the reservation of that right did not constitute 'property' of the settlor for the purposes of s.3 of the Inheritance Tax Act 1984 (as renamed by s.100 of the Finance Act 1986) and was not to be taken into account.

The settlor and the trustees appealed.Edward Nugee QC (instructed by Salan Hertzfeld & Heilbronn HRK) for the settlor and trustees; Michael Furness QC (instructed by Solicitor of Inland Revenue) for the Crown.Held, allowing the appeal, that by s.3 of the Inheritance Tax Act 1984 the amount transferred by a transfer of value was the amount by which the transferor's estate was less as a result of the transfer; that s.5 defined a person's 'estate' as the aggregate of all property to which he was entitled where the transfer took place on death less liabilities; that s.272 defined 'property' save when the context otherwise required as including 'rights and interest of any description'; that the right conferred on the settlor constituted property of the settlor, the context of s.3 not requiring any other conclusion; and that, accordingly, the value of it had to be taken into account so as to reduce the value of his estate after the transfer.