Jersey Royal Court Judgment: Does Charity Start With The Taxman?

• Published date: 21 June 2021
• Subject Matter: Corporate/Commercial Law, Tax, Charities & Non-Profits , Tax Authorities, Trusts
• Law Firm: Carey Olsen
• Author: Mr Andreas Kistler and Victoria Connolly

Representation of IQEQ (Jersey) Limited re the May Trust Royal Court of Jersey; Bailhache, Commissioner and Jurats Ramsden and Averty, 14 May 2021

The Royal Court has approved the distribution of almost half of the substantial trust fund of a family trust to the principal beneficiary, to allow him to donate it to charity. The Court's judgment is significant not only for the extent of the distribution that the Court permitted, but also in that the beneficiary proposed to incur deliberately a tax liability on the donation that could otherwise have been legitimately avoided. In deciding the application, the Court made observations that will be significant for families and trustees who wish to support charitable and socially responsible objectives with trust assets, especially in cases (unlike the present) where the trust does not include charitable objects.

Facts

By the time the application came to be heard, the beneficiaries of the trust were the principal beneficiary, his wife, his three daughters and four grandchildren, their issue, and a charitable foundation (the "Foundation") established by the principal beneficiary and administered by him, his wife and an independent trustee.

The trust had a history of charitable donations, with sums in excess of '8 million having been paid to charity by the time of the application while not more than '100,000 had been paid to the family. It was now proposed to distribute '75 million (almost half the trust fund) to the principal beneficiary for him to transfer to the Foundation. Although the trustee could have distributed this amount directly to the Foundation without incurring liability to tax, the principal beneficiary sought the distribution to himself as a UK taxpayer so that he could make transfers to the Foundation in such a manner (by electing and not electing gift aid relief on different tranches of the sum transferred) that an effective tax rate of 25% would be incurred on the total sum transferred. The family believed that the payment of tax would enable the government to provide a broader social benefit.

The trust contained a power to apply capital in the following terms: ". the Trustees shall have power in their absolute and unfettered discretion to pay or apply the whole or any part of the capital of the Trust Fund to or for the benefit of such one or more of the beneficiaries for the time being living in such shares if more than one and in such manner as the Trustees shall in their absolute discretion...