Upper Tribunal (Administrative Appeals Chamber)

IN THE UPPER TRIBUNAL Upper Tribunal case No.  CE/1769/2015

ADMINISTRATIVE APPEALS CHAMBER

 

Before: E Mitchell, Judge of the Upper Tribunal

 

 

Decision:  The decision of the First-tier Tribunal (20^th March 2015, Stockport North, file reference SC 944/15/00113) involved the making of an error on a point of law. It is SET ASIDE under section 12(2)(a) and (b)(i) of the Tribunals, Courts and Enforcement Act 2007 and the case is REMITTED to the First-tier Tribunal for rehearing. Directions for the rehearing are at the end of this decision.

 

REASONS FOR DECISION

 

The issue

 

1. The Secretary of State argues the funds within an Individual Savings Account (ISA) must be beneficially owned by the account holder. No one else can have a beneficial interest.

 

2. The appellant disputes that. He says his daughter is the beneficial owner of the ISA account which he opened. If the appellant can run that argument successfully, the ISA will not be part of his capital and will not reduce his award of income-related Employment & Support Allowance (ESA).

 

Summary of the outcome

 

3. I do not accept the Secretary of State’s argument. The law neither extinguishes the beneficial interests of third parties in sums deposited in ISA accounts nor imposes a general prohibition on a claimant who is an ISA account-holder from arguing that someone else has a beneficial interest. However, once the full legislative context is taken into account, it is clear that the adverse consequences for a claimant of running such an argument may be significant.

 

How the issue arises

 

4. Mr F was awarded income-related ESA in 2011. In 2014, the Department for Work & Pensions (DWP) obtained evidence that, when Mr F claimed, he was an ISA account holder. At all times the ISA balance exceeded the ESA capital limit of £16,000.

 

5. The Secretary of State says he revised Mr F’s ESA award, removing it with retrospective effect. This created an overpayment. Mr F appealed. His daughter wrote a supporting letter that the ISA funds really belonged to her. The ISA was designed to keep her money away from an unreliable partner. Mr F’s argument, therefore, was that the ISA was not part of his capital because he had no beneficial interest in it.

 

6. The DWP resisted the appeal arguing that Social Security Commissioner decision CIS/2836/2006 meant “the question of whether there is evidence that capital invested in an ISA belongs beneficially to someone else cannot be considered; the person in whose name the ISA is held has to be regarded as the beneficial owner of the money in the account”. While that decision concerned a P.E.P, the Commissioner applied regulations that were materially identical to the ISA Regulations 1998 so that the result had to be the same.

 

7. The Tribunal dismissed Mr F’s appeal because “monies invested in an [ISA] are in the beneficial ownership of that account”. By this, it must have meant Mr F, and no one else, was the legal and beneficial owner of the ISA.

 

8. I granted Mr F permission to appeal to the Upper Tribunal on the ground that, arguably, the First-tier Tribunal legally misdirected itself as to the meaning and effect of the ISA Regulations 1998. Written submissions were exchanged. The DWP maintained their position. Mr F’s solicitors argued that, even if CIS/2836/2006 were correct, it did not apply. It was about the effect of illegal conduct and no such allegation was made against Mr F. Neither party requested a hearing of the appeal. As the principal issue is one of pure law, on which I have had written argument, I decide a hearing is not required.

 

Legal Framework

 

The Individual Savings Account Regulations 1998 (“ISA Regulations”)

 

9. Regulation 3 of the ISA Regulations (entitled “Introductory”) describes what they do:

 

“These Regulations provide for the setting up of plans in the form of an account, by account managers approved by the Board, under which individuals may make certain investments, for the conditions under which they may invest and under which those accounts are to operate, for relief from tax in respect of account investments and generally for the administration of tax in relation to such accounts.”

 

10. So regulation 3 identifies four purposes, none of which necessarily require a third party’s beneficial interests in the sums deposited in an ISA to be extinguished. The purposes are:

 

(a) the setting up by approved account managers of investment plans in the form of accounts that qualify for tax relief;

 

(b) imposing conditions on making investments in such accounts;

 

(c) imposing conditions under which the conditions are to operate;

 

(d) dealing with the administration of tax in relation to such accounts.

 

11. Regulation 4 is entitled “General conditions for accounts and subscriptions to accounts”. Paragraph (1) defines what an account is. This is important because an investment plan that is not an account as defined does not attract ISA tax reliefs. The definition requires an account to fulfil the “conditions and requirements” in regulations 4(1A) and (5) to (8).

 

12. Regulation 4(5) provides that “an account must at all times be managed in accordance with these Regulations by an account manager and under terms agreed in a recorded form between the account manager and the account investor”. The account terms are controlled by the regulations. Regulation 4(6) requires the terms to “secure” certain matters including:

 

(a) “that the account investments shall be in the beneficial ownership of (i)…the account investor”. This requirement has been in the ISA Regulations since they were first made. Separate provision is made for junior ISAs which I need not set out; and

 

(b) “that the account manager shall notify the account investor if by reason of any failure to satisfy the provisions of these Regulations an account is or will become no longer exempt from tax by virtue of regulation 22(1)”.

 

13. Regulation 4A is entitled “Repair of certain incompatible account and excess subscriptions – accounts other than junior ISA account”. It identifies certain “invalid” accounts as “eligible for repair”. Once repaired, tax reliefs are maintained although the account investor remains liable to account to H.M.R.C. for “any relief from tax given for the period up to the date of discovery” (paragraph (2)(e)).

 

14. Regulation 12 is entitled “Conditions for application to open an account that is not a junior ISA account”. Paragraph (1) requires the ISA-applicant to give the account manager a statement that fulfils certain conditions, including a declaration that “all cash subscriptions made, and to be made, to the account are the applicant’s cash” (paragraph (3)(c)). The account manager must make a record of the declaration and notify the applicant of its contents within 5 business days. By regulation 29, the account manager is required to keep this record.

 

15. Linked to the declaration requirement, regulation 12(6) prohibits an account manager from accepting as an account investor “any individual if he has reason to believe that (a) he is not or might not be a qualifying individual, or (b) he has given untrue information in his application”.

 

16. Regulation 22 provides that, generally, income tax is not chargeable in respect of interest accruing on ISA deposits and “relief in respect of tax shall be given in the manner and to the extent provided by these Regulations”. Regulation 28(1) deals with the case where any relief or exemption from tax is found “not to be due”. In such circumstances, H.M.R.C. have the power to make an assessment of the unpaid tax.

 

The risks of running a beneficial interest argument

 

17. I shall step back for a moment to note that, given the legislative context, it is perhaps surprising that any claimant would argue a third party has a beneficial interest in the sums deposited in an ISA. This argument:

 

(a) implies the terms on which the ISA was agreed were either flawed or not adhered to by the claimant. This is because the terms must secure that no one else has a beneficial interest in the sums (reg. 4(6));

 

(b) implies that the claimant made an incorrect declaration upon opening the ISA. This is because the applicant must declare that the cash deposited is his/her cash (reg. 12(3)(c));

 

(c) involves an acceptance that any tax relief was wrongly applied. The argument that someone else has a beneficial interest in the ‘ISA’ involves accepting that it is not an ISA;

 

(d) generates the right for H.M.R.C. to recover the tax avoided (reg. 28). There may also be tax penalties to pay;

 

(e) risks criminal proceedings for the offence of being “knowingly concerned in the fraudulent evasion of income tax by that or any other person” (section 106A Taxes Management Act 1970).

 

The decision of a Social Security Commissioner in CIS/2836/2006

 

18. The Secretary of State argues this decision conclusively holds that ISA-sums must be in the sole legal and beneficial ownership of the ISA account holder. While that decision applied the Personal Equity Plan Regulations 1989, the ISA Regulations 1998 are said to be identical.

 

19. First of all, I do not believe that Commissioner Ovey held that, when any sums are deposited in a PEP, any pre-existing beneficial interest of a third party becomes dead to the law.

 

20. The Commissioner was concerned with “an agreement between two people that a PEP should be taken out in the name of one but as between the two of them it should belong wholly or in part to the other”. It is not immediately obvious (to me) whether the Commissioner decided such an arrangement was inevitably for an illegal purpose. The decision can be read that way. However, I think the Commissioner must have in fact taken the orthodox view that an illegal purpose must be proven. I say that because the Commissioner relied on the House of Lords’ decision in Tinsley v Milligan [1994] 1 A.C. 34. In that case, all of their Lordships’ speeches proceeded on the basis that illegality was proven rather than assumed.

 

21. The Commissioner went on to “consider what effect that element of illegality has” by reference to the House of Lords’ decision in Tinsley v Milligan [1994] 1 AC 340. I note that Tinsley v Milligan, despite its social security context, was in fact a dispute between the two wrong-doers as to ownership of property.

 

22. I shall briefly describe the facts of Tinsley v Milligan. The parties bought a boarding house together but agreed to put title to it in the sole name of Tinsley so that Milligan could claim income-related benefits. When Milligan tried to enforce her interest, Tinsley resisted and relied on the law of illegality. Ultimately, Tinsley lost. Milligan was entitled to bring a claim to vindicate her beneficial interest in the boarding house.

 

23. In CIS/2836/2006 a daughter claimed the sums in a PEP were in the beneficial ownership of her mother. There was no dispute between them. In other words, mother had not tried to retrieve her cash from her daughter and been met with a refusal on the basis that the initial arrangement was unlawful.

 

24. Be that as it may, the Commissioner decided the equitable presumption of advancement applied because the transferor was in loco parentis the transferee (mother to daughter). There was a “presumption that, in so far as the money invested in the PEPs belonged to the claimant’s mother, she was making a gift of that money to the claimant” and “if the mother were to assert her alleged entitlement, she would be met by the argument that she was relying on her own illegality”. Since the mother could not enforce her interest, she was treated not to have one. I can see how this finds support in Tinsley v Milligan because Lord Browne-Wilkinson drew a distinction between cases involving a presumption of advancement and those involving a presumption of a resulting trust (as in Tinsley v Milligan). He said:

 

“Although the presumption of advancement does not directly arise for
consideration in this case, it is important when considering the decided cases
to understand its operation. On a transfer from a man to his wife, children
or others to whom he stands in loco parentis, equity presumes an intention to
make a gift. Therefore in such a case, unlike the case where the presumption
of resulting trust applies, in order to establish any claim the plaintiff has
himself to lead evidence sufficient to rebut the presumption of gift and in so
doing will normally have to plead, and give evidence of, the underlying illegal
purpose.”

 

25. But, even if the Commissioner was wrong that the presumption of advancement applied, there was an alternative route to the same finding. If the Commissioner held that was because the law of illegality prevented the daughter from arguing that her mother was beneficial owner of the PEP, I would have the misfortune to disagree. If the presumption of advancement point was ignored, then applying Tinsley v Milligan must have involved a presumption that a resulting trust was created since mother was transferring money to daughter. As Lord Browne-Wilkinson said:

 

“A presumption of resulting trust also arises in equity when A transfers
personalty or money to B: see Snell's Equity 29th ed. (1990) pp. 183-184;
Standing v. Bowring (1885) 31 Ch D 282, 287, per Cotton L.J.; Dewar v.
Dewar [1975] 1 W.L.R. 1532, 1537d.”

 

26. Lord Browne-Wilkinson went on to explain why, in such a case, the illegal features of the initial transaction do not prevent the transferor from asserting their equitable / beneficial interest:

 

“Where the presumption of resulting trust applies, the plaintiff does not have to rely on the illegality. If he proves that the property is vested in the defendant alone but that the plaintiff provided part of the purchase money, or voluntarily transferred the property' to the defendant, the plaintiff establishes his claim under a resulting trust unless either the contrary presumption of advancement displaces the presumption of resulting trust or the defendant leads evidence to rebut the presumption of resulting trust. Therefore, in cases where the presumption of advancement does not apply, a plaintiff can establish his equitable interest in the property without relying in any way on the underlying illegal transaction.”

 

27. If the presumption of advancement is ignored, I do not see how CIS/2836 materially differed from Tinsley v Milligan. The transfer of ‘PEP’ money from mother to daughter gave rise to a presumption of a resulting trust. If the mother were to bring a claim to enforce her interest, she would not need to rely on the underlying illegal transaction. Therefore, I do not see how, in the resulting trust scenario, the law of illegality could play out so as to prevent the the mother’s interest from being asserted.

 

28. It may in fact be the case that the alternative basis for the Commissioner’s finding was simply the application of a wider principle of illegality. It might have been considered contrary to public policy to allow the daughter to assert that her mother was beneficially entitled to the sums deposited.

 

29. Finally, I note that it seems to me that the Commissioner expressly declined in paragraph 85 of the decision to decide whether the regulations themselves created in all cases a “statutory presumption of beneficial ownership”.

 

Conclusions

 

Should the First-tier Tribunal follow CIS/2836/2006?

 

30. I need first to clarify what CIS/2836/2006 did and did not decide.

 

31. CIS/2836/2006 did not decide that every arrangement for an ISA / PEP account holder to make an ISA deposit of cash beneficially owned by another must have the illegal purpose of tax evasion. The illegal purpose must be established rather than assumed. Moreover, it is likely that many ISA account holders who are on income-related benefits have income below the income tax personal allowance threshold even if the ISA interest is taken into account. In those circumstances, it is difficult to see how the illegal purpose of tax evasion could be proved.

 

32. The Secretary of State is also wrong to assert that the decision holds that the ISA Regulations 1998 cause beneficial interests of third parties to disappear, as if by legal magic. The Commissioner did not decide that point.

 

33. Leaving to one side for now presumption of advancement cases, I do not agree that CIS/2836/2006 is authority for the proposition that the law of illegality generally prevents person A from asserting a beneficial interest in monies transferred to person B even if the transfer has an underlying illegal purpose. Here, the law presumes a resulting trust. In order to assert his/her interest under the trust, person A does not need to rely on that illegal conduct. That was the finding in Tinsley v Milligan. Since CIS/2836/2006 applied Tinsley v Milligan it cannot be authority for a contrary proposition.

 

34. I believe the ratio or essential legal reasoning of CIS/2836/2006 is restricted to presumption of advancement cases. That is, cases where the person who transfers the cash in loco parentis the recipient. It has no wider application than that. But within that sphere it holds that it is not open to the claimant ISA account-holder to argue that the ‘parent’ has a beneficial interest in the ISA sums.

 

35. Therefore, when the decision’s proper confines are identified it is clear it does not apply to the present case at all. In this case, it is said a daughter passed sums to her father. On my understanding of the principles, that does not give rise to a presumption of advancement. Therefore, CIS/2836/2006 is probably irrelevant.

 

36. I say ‘probably’ irrelevant because the Secretary of State reads the decision, it seems to me, as holding that, as a matter of public policy, a claimant is not allowed to rely on a beneficial interest that s/he has previously denied. I explain below why I do not agree with that argument.

 

Why the law of illegality / public policy does not prevent assertion of a beneficial interest

 

37. The Supreme Court recently confirmed the general approach taken to the defence of illegality in Tinsley v Milligan: Hounga v Allen [2014] UKSC 47; [2014] 1 WLR 2889. Hounga also placed particular emphasis on the context of any particular agreement with an element of illegality. The presence of an element of illegality does not necessarily nullify the agreement or prevent a person from relying on it.

 

38. Hounga concerned a domestic worker whose employer brought her to the UK illegally in breach of the immigration laws. The employer dismissed the worker’s claim for unlawful race discrimination. The Court of Appeal held that the illegality of the worker’s contract of employment formed a material part of her complaint to the employment tribunal and to uphold it would be to condone the illegality.

 

39. The Supreme Court disagreed. Usefully for present purposes, the Court shed light on the principles governing the application of the law of illegality. Lord Wilson (speaking for the majority) held that the law does not confer a broad judicial discretion to take any illegal actions on the part of a claimant into account when deciding the extent to which such illegality has an impact upon the relief sought by the claimant. Rather, the court’s task is to identify in the specific context in question a particular rule which reflects in an appropriate way the relevant underlying policy in that area. Two questions should be asked. First, “what is the aspect of public policy which founds the defence?”. Second “is there another aspect of public policy to which application of the defence would run counter?”.

 

40. So far as the first question was concerned, Lord Wilson gave a general answer: the “concern to preserve the integrity of the legal system is a helpful rationale of the aspect of public policy which founds the defence” (Canadian Supreme Court in Hall v Herbert [1993] 2 SCR 159). Lord Wilson went on to address the second question by asking these issue-specific questions:

 

(a)  did the employment tribunal’s award of compensation to the worker allow her to profit from her unlawful conduct. Answer: no, it was compensation for injury to feelings consequent on her dismissal;

 

(b) did the award of compensation evade a penalty prescribed by the criminal law. Answer: no, the worker had not been prosecuted and, even if she had been and received a penalty, compensation would not represent evasion of it;

 

(c) did the award of compensation compromise the integrity of the legal system by encouraging illegal contracts of employment? Answer: no, “the idea is fanciful”;

 

(d) conversely, would applying the defence of illegality to defeat the claim itself compromise the integrity of the legal system by “appearing to encourage those in the position of [the employer] to enter into illegal contacts of employment? Answer: yes, it “might engender a belief “that they could discriminate against employees with impunity”.

 

41. Those answers all pointed in the same direction. The employer could not, therefore, rely on a defence of illegality.

 

42. The case law authorities referred to above were directly concerned with the effect of illegality on permissible defences to a civil action. One was a trusts case involving equitable principles (Tinsley v Milligan) and the other had a contractual context (Hounga). The present case does not involve a defence to a civil action. It is an appeal against the Secretary of State’s decision that a person was wrongly found to have met the statutory entitlement criteria for a welfare benefit in which it is asserted that a third party is beneficially entitled to the capital. Those circumstances are closer to those in the Court of Appeal’s recent decision in R (Best) v Secretary of State for Justice (Rev 1) [2015] EWCA Civ 17. There an individual sought the benefit of a statutory entitlement to land under the Land Registration Act 2002. He applied to be entered as the registered proprietor of land but, in so doing, relied on a period of adverse possession (which for ease of explanation I will describe as akin to squatting) involving a breach of the criminal law. Sales LJ had no doubt that, in principle, the law of illegality had a wider reach than simply defences to civil actions:

“43. In many contexts in the civil law, rights between persons are informed by the idea that a person should not benefit as a result of unlawful action taken by himself: see e.g. Alghussein Establishment v Eton College [1988] 1 WLR 587. There is also a narrower and more specific principle, that a person should not be able to benefit from a crime they have committed or from conduct with features similar to criminal conduct. This narrower principle underlies the law of illegality, summarised in the old maxim ex turpi causa non oritur actio (a claim cannot be founded on a wrong committed by the claimant): see Les Laboratoires Servier v Apotex Inc. [2014] UKSC 55”.

43. Sales LJ went on to state that the “best guidance on the relevant analytical framework” for deciding whether that applicant’s unlawful conduct prevented him from applying for registration was found in Hounga. From Best, I take it that, in principle, the law of illegality can operate in a context such as the present and, if it does, I should be guided by Hounga to decide what effect, if any, it has.

 

44. If the law of illegality is relevant, the questions posed by Lord Wilson in Hounga can be reformulated to determine whether in social security cases an ISA account-holding claimant is permitted to dispute a decision on the ground that the monies are in the beneficial ownership of another:

 

(a) would the claimant’s establishment of a beneficial interest allow a person to profit from unlawful conduct? Answer: no, it would reveal that a person obtained a tax relief to which s/he was not entitled and in respect of which H.M.R.C. could now raise a tax charge;

 

(b) would permitting the claimant to rely on the beneficial interest evade evasion of a penalty prescribed by the criminal law. Answer: no, it would in fact increase the chances of a penalty being applied by drawing attention to a possible breach of the criminal law (fraudulent evasion of income tax);

 

(c) would permitting the claimant to rely on another’s beneficial interest compromise the integrity of the legal system by encouraging fabricated applications for ISAs? Answer: no, since seeking to rely on the illegality would draw its attention to the proper authorities;

 

(d) would applying the doctrine or defence of illegality (to prevent the beneficial interest argument from being run) compromise the integrity of the legal system? Possibly, by discouraging revelation of unlawful arrangements to evade tax.

 

45. From those answers, I decide that the law of illegality does not generally prohibit a social security claimant, whose award is potentially affected by capital, from arguing that the beneficial interest in ISA sums lies elsewhere. Having applied the answers to Lord Wilson’s structured set of questions, I do not think that permitting the argument to be run would diminish the integrity of the legal system.

 

Whether the ISA Regulations 1998 extinguish beneficial interests even in the absence of proven illegality

 

46. As I mentioned above, CIS/2836/2006 did not hold that ISA-type legislation operates to extinguish beneficial interests of third parties in ISA deposits. However, the Secretary of State effectively argues that it does and so I should address that point. It is clear to my mind that the ISA Regulations 1996 do not have that affect.

 

47. In Shiloh Spinners Ltd v Harding [1973] AC 691, the Judicial Committee of the House of Lords held:

 

“where the courts have established a general principle of law or equity [this encompasses the concept of the beneficial interest] and the legislature steps in with particularl legislation in a particular area, it must, unless showing a contrary intention, be taken to have left cases outside that area where they were under the influence of the general law”.

 

48. The introductory regulation (reg. 3) to the ISA Regulations 2008 does not suggest, expressly or impliedly, that the 1998 Regulations’ purpose is to alter existing rights in relation to property. Reg. 4(6) does not declare that the account investments are in the beneficial ownership of the account investor. The job of this regulation is to place obligations on the account investor and no one else. All it does it tell the investor that terms with a certain purpose must always be included in an ISA agreement. There is nothing here to suggest a contrary intention to that presumed by Shiloh Spinners – to leave untouched general principles of equity.

 

49. Moreover, the enabling powers for the regulations do not extend to altering pre-existing property rights. The original enabling power was to “set out the conditions subject to which plans are to operate and the extent to which investors are to be entitled to relief from tax” (section 333(2) Income and Corporation Taxes Act 1988). That is then particularised but neither the general power, nor the particulars, extend to altering pre-existing property rights. And why should they? The purpose of the legislation is to create a special account with special tax advantages. If the conditions necessary for an account to exist do not apply, the tax relief is not awarded. That is all the legislation is concerned with and there is no need to imply negation of pre-existing beneficial interests to achieve that purpose.

 

50. Finally, I am instinctively uneasy with the suggestion that depositing sums in an ISA negates any pre-existing beneficial interest. It opens a door to financial exploitation in my view.

 

Practical advantages in leaving illegality out of First-tier proceedings

 

51. Leaving the presumption of advancement to one side for a moment, there are practical advantages in ISA cases in removing illegality from the equation altogether. This should make First-tier Tribunal proceedings more straightforward and focus the Tribunal on what it is well-suited to resolve – issues of fact. The law of illegality is a difficult concept. It has been considered by the Supreme Court at least three times in the last six years but always by majority decision (Hounga; Les Laboratoires Servier v Apotex Inc. [2014] UKSC 55; Stone & Rolls Ltd v Moore Stephens [2008] EWCA Civ 644, [2009] UKHL 39, [2009] AC 1391). If it can properly be left out of social security tribunal proceedings, so much the better for the informal and speedy resolution of appeals.

 

52. Leaving the law of illegality out means Tribunals would not have to apply different tests according to whether the claimants arrangement with the third party was for the illegal purpose of evading tax as opposed to, for example, careless completion of the ISA forms.

 

53. Leaving the law of illegality out also avoids the need potentially to join the third party as an interested party to the tribunal proceedings. Fairness might require this if a finding could be made that the third party and the claimant entered into an illegal arrangement (criminal or quasi-criminal) to which criminal law and penal tax sanctions might apply.

 

54. Finally, if the Tribunal sets itself the task of deciding whether an arrangement had an illegal purpose it may find matters complicated by its inability to override the privilege against self-incrimination (see LM v Lewisham LBC [2010] AACR 12.

 

55. There is the complication presented by cases in which the presumption of advancement might arise. However, I am not convinced that the law of illegality needs to be deployed even here. It would retain the complexity-inducing distinction between cases where there is an illegal purpose (so that the presumption could not be rebutted were the parties to dispute ownership) and those without an illegal purpose. If that can be avoided, all the better. And there is a good argument that it can be avoided. It is not immediately obvious why the presumption of advancement needs to have a role in social security proceedings. These are not cases in which individuals dispute ownership (they speak with one voice on the point) so that the chances of the presumption of advancement ever being relied on are minimal. In those circumstances, it seems to me open to a Tribunal to conclude that the presumption is irrelevant to the issues it has to decide. That would leave it simply having to determine the claimant’s argument which, as I pointed out above, is an argument which carries a number of risks and disadvantages.

 

56. Overall, I think it would be far better for the First-tier Tribunal in ISA cases to ignore the role that might or might not be played by the law of illegality and instead simply focus on whether it accepts the claimant’s argument that the beneficial interest in the relevant asset lies elsewhere.

 

Guidance on dealing with the issue

 

57. It might assist if I give guidance about how to deal with an argument that the beneficial interest in an ISA lies elsewhere. I am not sure how frequently this arises but I note there are currently three cases pending before the Upper Tribunal in which it is an issue.

 

58. If a claimant ISA account-holder argues the beneficial interest in the ISA lies elsewhere, certain evidence relevant to that issue can only be supplied by the claimant. Accordingly, the claimant is expected to supply it (once asked) so that, if s/he does not, a decision maker or Tribunal is entitled to draw an adverse factual inference (Kerr v Department for Social Development [2004] UKHL 23; [2004] 1 WLR 1372).

 

59. Relevant evidence will include the original ISA agreement (which had to include a ‘no beneficial interests’ term) and the declaration that all the cash deposited in the ISA belonged to the claimant. I would suggest that the DWP seek this evidence as a matter of course where a claimant argues the beneficial interest in ISA deposits lies elsewhere. These documents should have been retained by the ISA account manager given the record-keeping obligations under the ISA Regulations 1998.

 

60. If that evidence contradicts the claims as to beneficial ownership being advanced, findings of fact will need to be made to resolve the dispute as to beneficial ownership. The claimant may well have an evidential mountain to climb.

 

Disposal

 

61. The First-tier Tribunal erred in law. It wrongly assumed that CIS/2836/2006 held that the contents of an ISA must be in the beneficial ownership of the account investor. I set its decision aside.

 

62. The appeal is now remitted to the First-tier Tribunal for re-hearing. Below I direct that Tribunal not to apply CIS/2836/2006. It cannot be relevant in the circumstances of this case.

 

Directions

 

I direct as follows:

 

(1)   An oral rehearing of Mr F’s appeal against the Secretary of State’s decision of 28^th October 2014 must be held by the First-tier Tribunal. The Tribunal’s membership must not include anyone who was a member of the Tribunal whose decision I have set aside.

 

(2)   The Tribunal must not follow CIS/2836/2006. It does not apply on the facts put forward in this case.

 

(3)   Within one month of the date on which these directions are issued, Mr F must:

 

(a)    obtain from his ISA account manager a copy of the agreed terms on which they entered into an ISA agreement; and

(b)   obtain from his ISA account manager a copy of the declaration that he made upon opening the ISA; and

(c)    send copies of those documents to the First-tier Tribunal; and

(d)   if he cannot obtain those documents, send the First-tier Tribunal a copy of the account manager’s letter in which it explains why the documents have not been supplied to Mr F;

(e)    any further written submission which he wishes to put to the First-tier Tribunal.

 

(4)   Within two months of the date on which these directions are issued, the Secretary of State must supply the First-tier Tribunal with a supplementary written submission. This must indicate whether he maintains the position on the facts which he previously took in this appeal. I would suggest he send a Presenting Officer to the hearing (and the First-tier Tribunal MIGHT direct that he does).

 

(5)   Mr F is encouraged to attend the hearing. It might also be in his interests for his daughter also to attend and give oral evidence.

 

 

 

 

 

 

(Signed on the Original)

E Mitchell

Judge of the Upper Tribunal

4^th November 2015