GREY v IRC

The creation of trusts run closely to dispositions of interest unless properly worded and executed in accordance with English law.

In this matter, the settlor elected to draft and duly sign a declaration of trust, while orally providing the exact nature of the trusts to his trustees; and so, it was this indiscretion that caused the Inland Revenue to seek proportionate stamp duty on grounds that the gesture amounted to a disposition of property and nothing less.

Having chosen to leave consideration for his grandchildren, the settlor created six trusts on two separate occasions, each leaving 3,000 company shares per beneficiary, along with particular instructions as to their use.

When looking to officialise his request, he brought together his trustees, before instructing them as how best to manage the trusts; and so, having finalised six declarations of trust, he signed and sealed them in witness of his solicitor.

A key part of his participation was that as of the date the deeds were completed, the settlor had agreed to renounce his continued beneficial, equitable (and therefore legal) interest in the trust property, and that the trustees were now holding them on trust for the benefit of his grandchildren.

Unfortunately, section 53 (1) of the Law of Property Act 1925 reads that:

“Subject to the provisions hereinafter contained with respect to the creation of  interest in land by parol, . . . (c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will.”

The question then raised, was whether by virtue of their release, the actions of the settlor and the construction of the declarations of trust, were tantamount to voluntary dispositions, that under the terms of statute, attracted stamp duty (or ad valorem duty as referred to at the time), or that by lack of written instructions as to their use, the trusts were ineffective and thus exempt from taxation?

When first heard, the judge awarded in favour of the trustees, and cited that no duty was applicable because no ‘disposition’ had been intended nor indicated, except for the choice of words used by the settlor.

Upon appeal, the Court reversed the decision and took the opposing view that despite the intentions of the settlor, the manner in which the trusts were created altered the nature of the relationship between executor and trustee; inasmuch as the settlor had granted beneficial and equitable ownership to the trustees, and could no longer see himself as a trustee of the property, until such time as the grandchildren took title upon his death.

Presented again before the House of Lords, much greater focus was placed upon the consolidation of the Law of Property Act 1924 and The Statute of Frauds, which under section 9 explained:

“[A]ll grants and assignments of any trust or confidence shall likewise be in writing, signed by the party granting or assigning the same, or by such last will or devise, or else shall likewise be utterly void and of none effect…”

Statute of Frauds

The appellants relied this time upon the terms ‘grants and assignments’ to circumvent the requirements of the Law of Property Act 1925; on grounds that because the terms of the trust had failed to take written form, the trusts were both invalid and therefore exempt from duty, and that reliance upon the term ‘disposition‘ was an overextension of the facts and a misdirection of law. 

Upon generous consideration, it was unanimously agreed that despite the intimation that the actions of the settlor were misconstrued, it was relatively easy to interpret that the renunciation of interest was equatable to a disposition, and that under those circumstances, the relevant statutory duty was owed, while the House reminded the parties that:

“[A] direction to a trustee by the equitable owner of the property prescribing new trusts upon which it is to be held is a declaration of trust but not a grant or assignment.”