In Executors of Beryl Coulter v HMRC [2016] EWCA Civ 938 the Court of Appeal confirmed that a legacy to a Jersey charity is not an exempt transfer for inheritance tax.

Transfers to qualifying charities are exempted from inheritance tax (IHT) by IHTA 1984 section 23.  The definition of charity in FA2010 schedule 6 part 1 includes the condition that charities must be subject to the jurisdiction of a UK court or that of another EU member state.

  • Beryl Coulter was domiciled in Jersey.
  • She left her estate, including UK assets, to a Jersey Trust with charitable objectives.
  • HMRC denied any relief for the charitable legacy and charged the UK assets to IHT.

The court of appeal found that the trust was not subject to the jurisdiction of the courts of the UK nor another EU member state (as Jersey is not a member of the EU).

The charitable trust therefore did not meet the required conditions and definitions in IHTA 1984 or FA 2010 and relief from IHT was not available.

A further appeal in this case as to whether the limitations of the IHT exemption are unlawful as regards the EU freedom of movement of capital was adjourned but was heard in June 2017. The Court of Appeal found:

  • Jersey is not part of the UK and is therefore a third country for the purposes of EU freedoms
  • It would be justified for IHTA, s 23 to contain a right for HMRC to verify information about an overseas charity by reference to a mutual assistance agreement. 
  • HMRC is entitled to refuse to grant relief on gifts to non-UK charities unless there is a mutual assistance agreement between the UK and the country in which the charity is based. As there was no such agreement with Jersey at the time of Ms Coulters death, the appeal was dismissed.
  • The Court did not consider it appropriate to refer the case to the CJEU for opinion.

Links

Freeview guides:

IHT: charitable giving

IHT relief: 10% discount for charitable bequests

IHT: Inheritance Tax Rates and Allowances

Subscriber guides:

Non-domicile status and tax

Estate planning checklist

Case reference:

Executors of Beryl Coulter v HMRC [2016] EWCA Civ 938

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