In Routier and Anor v HMRC [2019] UKSC43 the Supreme Court found that a gift to a Jersey trust qualified for IHT exempt charitable status despite the trust not being governed by UK law; to deny the relief would contravene EU law.

Transfers to qualifying charities are exempt from inheritance tax (IHT) by s23 IHTA 1984.  The definition of charity as interpreted by the courts requires them to be subject to the jurisdiction of a UK court.

  • Beryl Coulter was domiciled in Jersey.
  • She left her estate, including UK assets, to a Jersey Trust with charitable objectives.

The Court of Appeal found the trust was not subject to the jurisdiction of the courts of the UK or another EU member state as Jersey is not a member of the EU, so it did not meet the conditions for IHT exemption.

The court also considered whether the limitation of the IHT exemption was unlawful under the EU freedom of movement of capital. They found that as Jersey is a third country for the purposes of EU freedoms and as there was no mutual assistance agreement covering IHT between the UK and Jersey at the time of Ms Coulters death, the exemption was not unlawful in this particular case.

Mrs Coulter’s executors appealed to the Supreme Court who reversed the Court of Appeal decision:

  • The court agreed that Jersey is not part of the UK and is a third country for the purposes of the free movement of capital and that the refusal of relief under s23 IHTA constituted a restriction on this freedom.
  • Rather than determining whether the refusal of relief was justifiable under EU law, the Court examined the definition of charity finding that the “gloss” put on this by the UK courts, which required a charity to be subject to UK law or the jurisdiction of a UK court for s23 to apply was overridden by EU law as this takes precedence over UK law when inconsistencies arise. If the “gloss” was ignored s23 did not require a charity to be subject to UK law.
  • A denial of the relief was therefore a breach of EU law and the relief should be allowed.

Comment

The court only considered the issue with respect to whether there was a breach of EU law. Therefore, whilst it may be a welcome decision as a binding precedent that tax relief should be allowed for charitable gifts to non-UK charities,  post-Brexit the decision will presumably cease to be of use and taxpayers leaving gifts to overseas charities will need to wait for a further decision which does examine the domestic law position.

Links to our guides

IHT: charitable giving

IHT relief: 10% discount for charitable bequests

Non-domicile status and tax

Estate planning checklist

External link:

Routier and Anor v HMRC [2019] UKSC43 

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