Lord Keith of Kinkel

My Lords,

For the reasons given in the speech to be delivered by my noble and learned friend, Lord Templeman, which I have had the opportunity of reading in draft and with which I agree, I would allow these appeals.

I would add only that, having been one of the majority in I.R.C. v. Plummer [1980] AC 896, I feel no doubt that upon the issues which were actually argued before the House, that decision was correct.On the other hand, I have equally no doubt that if the argument which was successful in W.T. Ramsay Ltd. v. I.R.C. [1982] AC 300 had been presented by the revenue in Plummer's case my conclusion would have been against the taxpayer.

Lord Templeman

My Lords,

Income tax is a tax on wealth so that the higher the income of the taxpayer, the greater the amount of income tax which he must pay.Conversely, if a taxpayer reduces his income, he reduces his income tax.In 1971 there were in circulation a number of tax avoidance schemes which were designed to reduce the taxable income of an individual taxpayer without reducing his actual income.The Cardale Capital Income Plan Mark I was designed to enable a taxpayer to enjoy part of his actual income tax free by exploiting the fiscal treatment of annuities.

By the Income and Corporation Taxes Act 1970 an annuity payable for at least four years and fulfilling certain other conditions ceases to be the income of the payer and becomes the income of the annuitant.By ss. 108 and 109 of the Act of 1970 income tax is charged on the annuity and by ss. 52 income tax at the standard rate is deductible by the payer and retained by him if he pays the annuity out of his income.By ss. 3 and 528 the payer may deduct from his total income for income tax purposes the gross amount of the annuity.Thus the gross amount of the annuity is paid out of the actual income of the payer reducing his actual income and reducing his taxable income by the like amount.The annuity becomes the actual and taxable income of the annuitant.Tax at the standard rate is deducted by the payer of the annuity.If the payer certifies that he has paid the annuity out of his actual income and if the annuitant's total income does not render the annuitant liable to income tax at the stan- dard rate then the annuitant can claim from the Revenue the amount of tax which has been deducted from the annuity so far as that deduction exceeds the amount of tax for which the annuitant is liable.But the taxable incomes of payer and annuitant are only altered if an annuity is paid and received.

In March 1971 the respondent Mr. Moodie paid a fee of 2433,693 for the implementation of the Cardale Capital Income Plan Mark I. The following steps were taken on 8 March 1971:

(1) The bankers SW advanced 24359,400 to Hovas, a charitable trust company formed for the purposes of the plan.

(2) Hovas paid 24359,400 to Mr. Moodie in consideration of his covenanting to pay Hovas for five years, or, if shorter, the remainder of his life an annuity at such a rate as should equal 24312,000 after deduction of tax at the standard rate.The first payment was to be made on 29 March 1971 and subsequent payment on each 29 March.

(3) Mr. Moodie paid 24359,400 to Old Change Court (Investments) Ltd. (OCC) a company comprised in the SW group of companies in consideration for ten promissory notes for 24360,000.The notes were deposited by Mr. Moodie with Hovas as security for the payment of the annuity of 24312,000 pursuant to Step (2).

(4) OCC advanced 24359,400 to Baldrene Ltd., another SW company.

(5) Baldrene advanced 24359,400 to Hovas.

(6) Hovas paid 24359,400 to SW in discharge of the advance made under Step (1).

On 29 March 1971 and the four succeeding anniversaries of that date the following steps were taken pursuant to the plan:

(7) OCC paid 24312,000 to Mr. Moodie in redemption of two of the promissory notes in discharge of its obligations under Step (3).

(8) Mr. Moodie paid 24312,000 to Hovas to discharge his agreement to pay an annuity