.png)
.png)
In 1989 Mr Smallwood settled shares in two companies for the benefit of himself and his family. He had the power to appoint the trustees.
By 2000 the shares had increased substantially in value and it was decided that they should be sold. A scheme was devised to mitigate the capital gains tax under TCGA 1992, s 86 to which the taxpayer would be liable as a resident settlor having a beneficial interest under the trust.
Under the scheme, new trustees were appointed to replace the Jersey trustee. The new trustees were in Mauritius, a country which did not tax capital gains and which had a double tax agreement with the UK.
These trustees sold the shares and then resigned; UK trustees (the taxpayer and his wife) were subsequently appointed before the end of the tax year in which the shares were sold.
Relevant tax returns were submitted. HMRC however charged Mr Smallwood to capital gains tax on the share sale. The taxpayers appealed.
The Special Commissioner found for HMRC, so the taxpayers appealed to the High Court.
Mr Justice Mann in the High Court said that under UK capital gains tax legislation, gains were taxable in the UK if the assets were sold in the UK.
In this instance, there had been three periods of successive residence in the relevant UK tax year: Jersey, Mauritius and finally the UK.
Article 13(4) of the Double Taxation Relief (Relief to Taxes) (Mauritius) Order SI 1981 No 1121 gave the right to tax capital gains to the state in which the trustees were resident at the time of the sale.
The shares were sold when the trustees were resident in Mauritius. Mauritius therefore had the right to tax and the UK did not.
The taxpayers’ appeal was allowed.
