Vandervell v IRC: Difference between revisions

| judges = Lord Reid, [[Edward Pearce, Baron Pearce|Lord Pearce]], Lord Upjohn, Lord Donovan and [[Lord Wilberforce]]

This case was the first in a series of decisions involving Tony Vandervell's trusts and his tax liability. It concerned whether an oral instruction to transfer an equitable interest in shares complied with the writing requirement under [[Law of Property Act 1925]], section 53(1)(c), and so whether receipt of dividends was subject to tax. The second was ''[[Re Vandervell Trustees Ltd]]'',<ref>[1971] AC 912</ref> which involved the Special Commissioner of the Inland Revenue's ability to amend tax assessments. The third was [[Re Vandervell's TrustsTrustees Ltd (No 2)]],<ref>[21974] EWCA Civ 7</ref> which concerned whether Vandervell could be taxed becauseon hedividend couldincome have(as anbeneficiary equitable interest throughof a resulting trust) if hethe hadexercise exercisedof an option righthad validly transferred the beneficial interest in that income to another trust (of which he was not a beneficiary).

Vandervell orally instructed his trust company (Vandervell Trustees Ltd, which was also set up to administer his money for his children) to transfer 100,000 shares in Vandervell Products Ltd to the Royal College of Surgeons, with an option for the trustees to purchase the shares back for £5000. He then instructed the company to declare a [[dividend]] on the shares. So while the shares were in the possession of the Royal College of Surgeons, it paid out £245,000 in dividends up to 1961. Vandervell had hoped this would mean that he would avoid tax (as opposed to simply getting income for himself, on which he would pay tax, and then giving the money to the College). Unfortunately, in 1960, the Inland Revenue madeassessed aVandervell claimas forbeing taxliable to surtax on the transferdividends on the shares, as if he had not disposed of them.<ref>At this pointSubsequently, the trustees exercised the option and took back the shares.</ref>

The Inland Revenue argued that Vandervell retained an equitable interest in the shares. They were still his, as even though the shares were possessed by the College, he had the option to get them back. They also argued his oral instruction to the trust company was not capable of transferring the equitable interest, because it did not comply with the formality requirements specified in [[Law of Property Act 1925]] section 53(1)(c). This section requires signed writing to evidence the existence of a disposition. So he should be liable to pay tax on thedividends value offrom those shares.<ref>See C Mitchell and D Hayton, ''Trusts and Equitable Remedies'' (Sweet & Maxwell 2010) 114-115</ref>

The House of Lords, by three to two, found that Vandervell was indeed liable to pay tax on the £245,000 of dividends given to the [[Royal College of Surgeons]]. The House of Lords held that [[LPAthe Law of Property Act 1925]], ssection 53(1)(c), was not applicable to situations where a beneficiary directs his trustees, by way of his ''[[Saunders v Vautier]]'' right to do so, to transfer full legal and equitable<ref>nb Lord Browne-Wilkinson's rejection of such terminology in ''[[Westdeutsche Landesbank Girozentrale v Islington London Borough Council]]'' [1996] AC 669</ref> ownership to someone else. The case is a proposition that an oral declaration to a bare trustee to transfer the trust property to a third party absolutely for his own benefit is a valid disposition. However, Vandervell had not successfully divested himself of ownership (legal and equitable) in the shares, since the Trust Company had an option to purchase the shares back from the RCS. If the settlor does not divest himself adequately as in VanderwellVandervell v IRC a resulting trust would operate. The optionconsequence towas purchasethat aVandervell, substantial fraction ofas the company for only £5000 was extremely valuable. As suchbeneficiary, Vandervellwould wasremain liable to pay surtax on the optionassociated dividend income.

[[Category:1966 in United Kingdom case law]]