£600k inheritance tax case leads to landmark free movement judgement

Thursday 19 October 2017

A dispute over whether money left to charity in an islander’s will should be liable for £600k UK inheritance tax has given rise to a landmark decision on Jersey’s status as a ‘third country,’ able to enjoy free movement of capital.

Jersey resident Beryl Coulter, who passed away in 2007, had wished for part of her £1.8million estate to be put into a trust and used to buy a field and to help construct homes for elderly residents in St Ouen, or donated to Jersey Hospice.

The executors of Mrs Coulter’s will had hoped that the charitable donations from her UK assets would be exempt from UK inheritance tax, but HMRC said that the relief did not apply to gifts to entities outside of the UK.

The decision was disputed, but HMRC’s view was backed by the English Court of Appeal last year, leaving £591,724 due to the UK taxman.

While the appeal was unsuccessful, the case left the door open to questions over restrictions on the free movement of capital - specifically, whether the EU freedom should apply to movements between Jersey and the UK.

Pictured: The Royal Courts of Justice, Westminster, where UK Court of Appeal cases are heard. 

During a subsequent court case, HMRC argued that Jersey’s constitutional relationship with the UK meant that movements should be seen as ‘internal’, while the island’s Attorney General Robert MacRae QC (pictured) said that Jersey should be recognised as a ‘third country’ and therefore enjoy the benefit.

In a move that will have important implications for the island post-Brexit and reinforces its long-standing privileges, he successfully persuaded the Court that the island should have the same rights as other international finance centres.

Lady Justice Arden concluded that it was "the obligation of the UK to treat Jersey as a third country for the purposes of those rules.”

Following the landmark ruling, the Attorney General commented: “This issue had not been considered by the UK Courts before and the Court of Appeal gave us permission to be heard because of the importance of the matter to the Island. It is very helpful that Jersey's status as a third country for the purpose of free movement of capital has been put beyond doubt."

Geoff Cook, CEO of Jersey Finance, welcomed the certainty of the ruling: “In the context of Brexit, this judgement provides welcome clarity about Jersey’s standing as a third-country in Europe and recognition of this status in relation to assets flowing between the UK and Jersey. This is particularly important given Jersey’s close ties to the UK and the contribution Jersey makes to the UK, for instance in facilitating more than £1/2 trillion of foreign investment into the UK each year.”