TOMLINSON Vs. GLYNS EXECUTOR AND TRUSTEE CO.

JUDGEMENT

(1.) IN 1960 the grandfather, if I may so call him, Captain Knox of the Royal Navy, made a settlement in favour of his grandchildren. He appointed a trustee company and Mr. John Leonard Knox as his trustees. He conveyed several investments to those trustees on trust for the children of his son, Mr. Gerald Knox. Mr. Gerald Knox had then, in 1960, two small children. He has since had two other children. The four children are now aged 11, 10, 8 and 5. They are the expected beneficiaries under the trust, as well as any future children that Mr. Gerald Knox may have. In the settlement it was provided that the trustees were to hold the trust fund in trust for such of the beneficiaries as shall attain the age of 21 years or marry under that age, or, if more than one, in equal shares, absolutely. The 'beneficiaries' were defined as 'such of the children of Gerald whether already or hereafter to be born before the closing date. ' The 'closing date' was defined as meaning 'the day upon which the first child of Gerald to attain the age of 21 years shall attain that age. ' That meant that as soon as the eldest child became 21, the class was closed. No more children born after that date could take. If the eldest son lives till he is 21, the class will be closed on May 21, 1978. Otherwise, it will not be closed until the next child becomes 21. And so on.

(2.) IN 1965 the Finance Act imposed for the first time capital gains tax. after the Act, the trustees of this settlement had occasion to sell and realise some of the investments. They made a gain for the year 1965 -66 of Pounds 374. The question is : what is the rate of the capital gains tax which is chargeable on that capital gain ? The Finance Act, 1965, draws a distinction between corporations and trustees, on the one hand, and ordinary individuals on the other hand. Corporations and trustees have to pay the full rate of 30 per cent. on the gain (see section 20 (3)) : whereas ordinary individuals have an option given to them. An ordinary individual can select either to pay the full rate of 30 per cent. ; or alternatively, if he has not gained more than Pounds 5,000, he can say : 'I would prefer to have half of the gain added to my income and be assessed on the total' (see section 21 (1)). That is a very considerable benefit to ordinary individuals. In most cases, if an ordinary individual adds the half gain to his total income, the result will be that he will pay a lower rate than 30 per cent. on the gain.

(3.) IN the present case it is agreed that, if this was an ordinary trust of settled property, the trustees would have to pay 30 per cent. on the gain : but the trustees claim that this is an exceptional case where the children are to be regarded as if they were ordinary individuals and can claim the benefit of the alternative rate. If this is correct, the result would be (as they have no other income) that no capital gains tax would be payable. Instead of 30 per cent., it would be nothing. Mr. John Knox, one of the trustees, himself conducted the case before us and did it admirably. I will not go through the many sections of the Act today : I will only refer to the material one. Section 45 (1) of the Act defines 'settled property' as 'any property held in trust other than property to which section 22 (5) of this Act applies. ' Section 22 (5) says :