ON APPEAL FROM The High Court of Justice Chancery Division
Mr Justice Vos
Strand, London, WC2A 2LL
B e f o r e :
LADY JUSTICE HALLETT
LORD JUSTICE AIKENS
| BARCLAYS BANK TRUST COMPANY LIMITED AS TRUSTEES OF THE CONSTANCE MARY POPPLESTON WILL TRUST & ANR
|- and -
|THE COMMISSIONERS FOR HM REVENUE AND CUSTOMS
Mr Matthew Slater (instructed by HMRC Solicitor's Office) for the Respondents
Hearing date: 28 June 2011
Crown Copyright ©
89.—(1) This section applies to settled property transferred into settlement after 9th March 1981 and held on trusts -
(a) under which, during the life of a disabled person, no interest in possession in the settled property subsists, and
(b) which secure that not less than half of the settled property which is applied during his life is applied for his benefit.
(2) For the purposes of this Act the person mentioned in subsection (1) above shall be treated as beneficially entitled to an interest in possession in the settled property.
"(iii) From and after the death of my said [husband/wife] the Trust Company shall hold the residuary trust fund (or so much thereof as shall not have been paid or applied pursuant to any trust or power affecting the same) upon trust as follows:
(a) Upon trust to pay or apply the whole or such part (if any) as the Trust Company may think fit of the income thereof and/or the whole or such part (if any) as the Trust Company may think fit of the capital thereof to or for the benefit of my said son EDWIN GEORGE POPPLESTON (hereinafter called 'the Beneficiary') during his life with power to pay such income or capital or any part thereof to any person hospital or organisation for the time being having the care of the Beneficiary without seeing to the application thereof.
(b) The Trust Company shall accumulate any surplus income of the residuary trust fund at compound interest by investing the same and the resulting income thereof in any of the investments hereby authorised during the period of Twenty one years from my death if the Beneficiary shall so long live but the Trust Company shall have power at any time or times to apply such accumulations as if the same were income of the then current year.
(c) After the expiration of the said period of Twenty one years during the remainder of the life of the Beneficiary the Trust Company shall pay or apply any income of the residuary trust fund not paid or applied to or for the benefit of the Beneficiary to the persons or for the purposes to or for which the same would be payable or applicable if the beneficiary were dead.
(d) Subject as aforesaid I DIRECT that after the death of the survivor of myself my said husband and the Beneficiary the Trust Company shall stand possessed of the residuary trust fund (or so much thereof as shall not have been paid or applied pursuant to any trust or power affecting the same) and the future income thereof and all accumulations (if any) of income thereof respectively Upon trust for ALL or ANY the CHILD or CHILDREN of my said son EDWIN GEORGE POPPLESTON who shall be living at the death of the last survivor of myself my said husband and my said son and shall attain or shall have attained the age of Twenty one years and if more than one equally between them.
(e) If no children of my said son EDWIN GEORGE POPPLESTON shall be living at the death of such last survivor and attain the age of Twenty one years then I DIRECT that subject as aforesaid the Trust Company shall stand possessed of the residuary trust fund (or so much thereof as aforesaid) and the future income thereof and all accumulations (if any) of income thereof respectively upon trust for such of the CHILDREN of my said nieces Cecilia Ruth Stone Margaret Aileen Smart and Mary Christine Melarkey as shall be living at the death of such last survivor and shall attain or shall have attained the age of Twenty five years and if more than one in equal shares per capita."
"(v) Sections 31 (relating to maintenance and accumulation) and 32 (relating to advancement) of the Trustee Act 1925 shall apply hereto with the following variations: ...
(b) Section 32 shall have effect as if the words 'one half of' were omitted from proviso (a) to sub-section (1) thereof."
"(viii) No power or provision herein contained shall be capable of being exercised or operating in any manner such that (if the same were capable of being so exercised or operating) the existence of such power or provision would either:
(a) prevent any person who would (in the absence of such power or provisions) have had an interest in possession (within the meaning of the Inheritance Tax Act 1984) in any fund or part or share of a fund from having such an interest in possession as aforesaid or
(b) prevent Section 71 of the Inheritance Tax Act 1984 from applying to any trust to which (in the absence of such power or provision) the said Section would have applied."
(1) clause 7(iii)(a) permitted the payment of income or capital to any person, hospital or organisation having his care;
(2) clause 7(iii)(b) permitted income arising in Edwin's lifetime to be accumulated and then paid to his children or the nephews and nieces after the 21 year accumulation period had expired; and
(3) clause 8(v)(b) permitted the whole of the capital of the residuary estates to be advanced to any child of Edwin or, if none, the nephews and nieces.
"The word "benefit" in section 89(1)(b) is a wide word: see re Halstead's Will Trust  2 All ER 570 per Farwell J., and Viscount Radcliffe at p.627 in Pilkington v. IRC  3 All ER 622. It seems to me relatively clear that these words in clause 7(iii)(a) of the Will Trusts are not intended to allow the trustees to buy equipment or make gifts to hospitals or institutions that happen to be caring for Edwin. Rather, the words, read sensibly in their context, must mean that what is envisaged is that the hospitals or institutions caring for Edwin can be paid directly by the trustee for his care if that is a more administratively convenient course."
"30. Returning then to the proper meaning of the power in clause 7(iii)(b), it seems to me that the clause is only contemplating distribution of the accumulated income to Edwin in accordance with the governing clause 7(iii)(a) and is not contemplating that income accumulated during the first 21 years could be distributed in years 22 and beyond to other beneficiaries in the way that the unaccumulated income of those subsequent years is to be distributed under clause 7(iii)(c).
31. This result requires a purposive construction, but one that is necessary, in my judgment, to give effect to the obvious intention of the Will Trusts, which was for the primary benefit of Edwin. Whilst ingenious, [counsel for the Bank]'s construction would deprive the Will Trusts of their obviously intended effects. The power in clause 7(iii)(b) must be referring backwards to clause 7(iii)(a) rather than forwards to clause 7(iii)(c) in years 22 and following. The words "as if the same were income of the then current year" must therefore be read as referring to clause 7(iii)(a) only.
32. I am fortified in this result by a consideration of the likely intentions of the testatrix and the testator. I think it unlikely that they would have intended to provide for Edwin in such a way as allowed a 10-yearly charge to inheritance tax to depreciate that provision. It is far more likely that they would have preferred to take the larger hit of a charge to IHT upon Edwin's death since they plainly had a greater concern for the care of their son than for the gifts over to nieces and nephews. Thus, as it seems to me, subject to the next issue concerning advancement, the Will Trusts do indeed secure that more than half of "the settled property which is being applied during [Edwin's] life is applied for his benefit" within section 89(1)(b)."
"Again, in my judgment, Barclays' argument proves too much and would, if correct, destroy the clear purpose of the Will Trusts. It is true that clauses 8(v)(b) and 8(viii)(a) do not operate seamlessly, but the intention of the draftsman is sufficiently clear, in my opinion, from the words that he used. The extended power of advancement had a useful purpose, as I have illustrated, but it was indeed expressly overridden by clause 8(viii)(a) insofar as the trustees sought to exercise it to prevent Edwin, who would otherwise have been treated as having an interest in possession under section 89(2), from having such an interest. This construction does not deprive clause 8(v)(b) of all its effect but allows the two clauses to co-exist whilst still giving effect to the overwhelming purpose of the Will Trusts, namely to provide for the care of Edwin in his remaining years."
Lady Justice Hallett
Lord Justice Aikens