In Geoffrey Hawarth, Ian Lenagan and SG Kleinwort Hambros Trust Company Ltd v HMRC [2025] EWCA Civ 822, the Court of Appeal (CoA) found that a trust's 'place of effective management' was located in the UK where general management of the trust was undertaken, and not in the overseas jurisdiction where the trustees had been appointed.
The appellants used a tax avoidance scheme that operated by relying on the Double Taxation Convention between the UK and Mauritius. Trustees were appointed in Mauritius during a period when the trust disposed of shares to gain a Capital Gains Tax (CGT) advantage.
- In 2000, a family Trust holding shares in Teleware Plc (TWP) was set up by Geoffrey Haworth (GW).
- A further two family trusts were set up by Ian Lenagan (IL), holding shares in Workplace Group Ltd (WGL).
- The trustees of all three trusts were residents of Jersey.
- TWP and WGL were to be merged and listed on the London Stock Exchange (LSE).
- The merger would result in a Capital Gains Tax (CGT) liability arising for the trusts.
- To avoid CGT, GW and LI were advised by a tax professional to:
- Realise the gains whilst the trust had Mauritian trustees.
- Appoint UK trustees later in the same tax year.
- The companies were merged. Trustees in Mauritius were appointed and later resigned, followed by the appointment of UK trustees, which included SG Kleinwort Hambros Trust Company Ltd.
- HMRC amended GH and IL's tax returns, deeming them responsible for the CGT liability that arose from the disposal of the shares.
Appeals were made to the First Tier Tribunal (FTT) and the Upper Tribunal (UT). Both appeals were rejected.
The tax planning undertaken, known as the 'Round the World' scheme, aimed to ensure that the trustees were resident in Mauritius at the time the shares were disposed of.
- This meant that during the relevant period, the trusts' 'Place of Effective Management' (POEM) was Mauritius, thereby removing the requirement to pay CGT in the UK.
The Court of Appeal (CoA) case focused on the proper interpretation of POEM. The appellants argued that POEM centres around 'central management and control' and should be identified as the place where relevant decisions are made by trustees.
The Court of Appeal found:
- The phrase 'place of effective management', being a phrase used in the Model Convention, should not be approached in the same manner as domestic legislation.
- It should be construed in an 'international, not exclusively English' manner due to the fact that it has an autonomous meaning.
- POEM can effectively be in a place other than where 'central control and management' is located.
- Although an entity normally has only one central control and management, this is not always the case and, as such, POEM acts as a tie-breaker.
- Despite an entity having more than one place of central control and management, it can only have one place of effective control and management.
- The decision made by the Mauritian trustees had been pre-ordained. The Mauritian trustees were merely playing a part in a script written by others.
- During the period in which the Mauritian trustees were appointed, 'effective', or 'realistic, positive' management was elsewhere.
- POEM should not be determined 'at the moment of disposal', but that POEM could be found in the UK since there was a 'scheme of management of this trust which went above and beyond the day-to-day management exercised by the trustees for the time being'.
- Top-level management, or the place where key management and commercial decisions were made, and the place where the actions taken by the entity as a whole, was the UK.
The appeal was dismissed.
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Geoffrey Hawarth, Ian Lenagan and SG Kleinwort Hambros Trust Company Ltd v HMRC [2025] EWCA Civ 822