The law of formalities is really a series of ad hoc responses Essay Example

assign the equitable interest to the third party. And fourth, the person entitled to the interest can declare themselves as a trustee for the third party. Lord Evershed noted that category (2) is distinct from both an assignment and a declaration of trust. This direction qualifies as a "disposition" under Law of Property Act 1925 s.53 and must be in writing due to the broad interpretation given by the House of Lords. If the beneficial owner authorizes the transfer of the legal estate to donees, the beneficial interest passes to them without express mention.

It is important to mention that category (4) results in the creation of a sub-trust. In this scenario, A holds property in trust for B, who then declares themselves as trustee for C. If B does not have any specific responsibilities, they become a bare trustee and seem to withdraw from the situation, leaving A as the original trustee holding the property in trust for C.

Grey v IRC 1960 A.C 1 established that a direction to bare trustees to transfer assets to other trustees of a separate settlement, to be held on trust of that settlement, is considered a disposition of an existing equitable interest within section 53(1)(c). The court determined that the term 'disposition' has a broader meaning than the definition stated in section 9 of the Statute of Frauds 1677. Therefore, the oral direction given in this case, which aimed to determine the equitable interest in the shares, was considered a purported disposition within section 53(1)(c). However, the directions were deemed ineffective due to non-compliance with section 53(1)(c). Green argues that this applies when the disposer is the beneficial owner

of the interest in question.

Now, let's turn our attention to Vandervell v Inland Revenue Commission (1967) 2. A.C. 291, another case decided under section 53(1)(c). This case involved various transactions that caught the attention of the IRC as they seemingly tried to avoid paying stamp duty. Stamp duty is payable on instruments related to property transfers or interests in property, but it is not imposed directly on the transaction itself. The duty amount is calculated based on the value of the interest being transferred and can be avoided if the transfer is validly made orally.

However, if the writing requirements of section 53(1) (1) (c) are not met, the attempted transfer will be invalid. This provides an additional incentive for the revenue to utilize the section. In this instance, the Revenue succeeded with a majority of three to two. The option was held in trust for Vandervell and effectively granted by the Royal College. Vandervell Trustees LTD received the option on trust, but no explicit trusts were declared. Therefore, the defendant's company held the option on a trust for Mr. Vandervell.

According to Lord Wilberforce, there is no need or room to assume anything in this situation. The conclusion, based on the facts, is that the option was given to the trustee company as a trustee without a defined purpose, possibly to be determined later. However, the equitable or beneficial interest cannot remain uncertain. Therefore, it must remain with the settlor according to the law. If there had been clear indication of the parties' intention, it could have altered the situation entirely. However, the donor's intention alone cannot prevent a resulting trust.

In Re Vandervell's (No

2), the Court of Appeal overturned Megarry J's decision and ruled that the resulting trust of the option in favor of Vandervell ended when the option was exercised. Instead, a trust of the shares was declared in favor of the children's settlements. However, there have been criticisms of this finding. Moreover, even if the trustees' actions were enough to show an intention to create a new trust, it remains unclear how the option and shares could be separated. Some argue that before the option was exercised, Mr. Vandervell had a resulting trust as there was a gap in beneficial ownership. However, once the option was exercised and the shares were registered in the trustees' name, a valid trust of the shares in favor of the children's settlement was created.

Post-Vandervell, there have been developments in relation to the principle of special reservation of benefit. This principle, which was applicable under the estate duty regime but not relevant to capital transfer tax, was reintroduced by the Finance Act 1986 and is now a fundamental aspect of inheritance tax. The purpose of this principle is to prevent donors from taking advantage of potentially exempt transfers by retaining an interest in the gifts they make. The case of Oughtred v IRC (1958) ch.375 exemplifies this principle as it involved an oral agreement of shares being assigned for the purposes of s.53 (1) (c).

The trustees held shares on behalf of Mrs. Oughtred during her lifetime, with the remaining shares to be transferred to her son Peter. Peter agreed orally to transfer his interest in the remaining shares to his mother in exchange for some of her shares. Later, official

transfers were completed to transfer these shares to the mother. The Inland Revenue contended that stamp duty should be imposed on these transfers, as they were the documents that legally transferred the interest.

According to the mother, the doctrine of conversion, which applies to a contract that is specifically enforceable, means that the equitable interest has already been transferred to her. Therefore, the written agreement did not transfer anything. However, the majority of the House of Lords disagreed with this argument. They believed that the contract did not transfer the full equitable interest in the shares, and as a result, the document was subject to stamp duty. This conclusion seems reasonable because if the contract was canceled or specific performance was no longer an option, the son would still retain the entire equitable interest.

The principle stated in Ingram v IRC {2001} 1 A.C. now deals with the tax avoidance scheme that Vandervell entered into requiring interpretation of section 53 (1) (c). In this case, Lady Ingram transferred her property to a nominee for herself, who then granted her a 20 year lease with a prohibition on assignment and subletting. The transfer to the nominee was necessary because a freeholder cannot grant a lease to himself. The nominee then transferred the freehold reversion, subject to the lease, to trustees on certain trusts. The objective was to "carve out" the lease before making the gift.

The House of Lords determined that this plan did not constitute a gift with reservation. Upon Lady Ingram's death, only the lease which had no value at the time was included in her estate. (Lady Ingram passed away within three years of receiving the

freehold reversion as a gift, which made it a taxable transfer. However, it was assessed at its value on the date of the gift. Land values had significantly risen by the time of her death. If the reservation rule had applied, the reversion would have been considered part of her estate at its higher value on the date of her death). This type of scheme is no longer effective for disposing of gifts on or after March 9, 1999. Although the initial provision remains in effect, gifts not falling under it may now be subject to the new sections 102A or 102B of the Finance Act 1986.

According to Lord Hoffman, if you consume more than a small amount of what was given to you, you are considered to have consumed everything for tax purposes. He said, "You cannot both keep your cake and eat it."

In Oughtred, questions were raised regarding a stamp duty case that relied on the interpretation of the Stamp Duty Act 1981. These questions were resolved in Neville v Wilson [1997] Ch 144 COA. Although tax evasion was not a factor in this case, nominees held shares in U Ltd on trust for J Ltd, a family company. The shareholders of J Ltd informally agreed to liquidate the company and distribute its equitable interest in the U Ltd shares among themselves based on their current shareholdings.

The Court of Appeal determined whether s.53 (1) (c) had invalidated the agreement. If so, then the equitable interest would have transferred to the Crown when J Ltd was struck off the register. The Court held that each shareholders agreement resulted in an implied or constructive trust

due to the application of s.53 (2). Therefore, the agreement effectively transferred the equitable interest to the shareholders without needing to be in writing. The analysis presented in Oughted v IRC by Lord Radcliffe, which stated that a specifically enforceable agreement to assign passed the equitable interest to the assignee, was deemed correct. It was mentioned that Lords Jenkins and Keith had not made a definitive decision on this matter, and Lord Denning (with whom Lord Cohen seemed to agree) had rejected the application of S.53 (2) without providing any reasons for doing so.

It is not clear how Vandervell got rid of his equitable interest without writing. The House of Lords incorrectly believed that there was no difference between this case and cases where the legal estate and beneficial interest are owned by the legal owner. However, they distinguished Grey and Oughtred because those cases only dealt with the equitable interest. Section 53(1)(c) is suitable for situations where the transfer begins with an existing interest split from the legal title, while transfers by those who are absolutely entitled involve no dealings with a separate existing equitable interest. Vandervell seems to allow beneficiaries who are absolutely entitled to instruct their trustee to transfer property to another trustee, for the benefit of other beneficiaries, without having to comply with s.53 (1)(c). This essentially provides a way to avoid Grey and s.53 (1)(c).

Vandervell 2 ruled that a written transfer is required for a conscious and intentional transfer of an existing equitable interest. However, it stated that a written disclaimer is not necessary when an equitable owner intends to disclaim their interest. The court held that Vandervell's initial resulting

trust, which favored him, only existed when his true intention was not clear. This resulting trust was a temporary solution and was replaced by a newly declared trust. It would be inconsistent with 53(1)(c) for the law to not require a written disposition of an interest under a resulting trust. The mischief rule should only be applied when there is ambiguity; the literal interpretation of s.53 should have been used. Lord Denning's reasoning that no formalities were needed to terminate the resulting trust is difficult to understand since it involves releasing or surrendering the existing beneficial interest, which is a form of disposition under s.53(1)(c). Section 53(2) deals with the creation and operation of resulting trusts, not their termination. The Court of Appeal's decision is unsatisfactory as it allows a settlor to transfer property to nominees, implying a resulting trust, and then divest the equitable interest to new beneficiaries through oral direction in the form of a release and declaration of trust.

In my conclusion, I believe that Section 53(1) (c) has lost much of its significance in relation to tax-avoidance schemes, but it continues to hold importance similar to what it had during the time of the Statute of Frauds. There are instances when it is uncertain whether a transaction constitutes a declaration of trust or a disposition of an equitable interest. However, Section 53 (1) (c) does not apply to a trust that is newly created as there is no existing equitable interest in such cases. The provision is only activated when trustees receive instructions or when a person begins to dispose of the trust after its creation.

It is uncertain whether transactions

constitute a declaration of trusts or the disposition of an equitable interest. Many cases that are considered and appear are inconsistent and illogical because they involve the Inland Revenue in avoidance cases. As dispositions must be in writing and attract stamp duty, the Inland Revenue tends to argue for a disposition instead of a declaration. Stamp duty is charged on an instrument rather than the transaction itself. As previously discussed in the Vandervell cases, it is advantageous for the Inland Revenue, for tax purposes, to establish that an oral disposition was ineffective due to a lack of writing.