In Arron Banks v HMRC [2020] UKUT0101, the Upper Tribunal (UT) upheld the decision to deny Inheritance Tax relief for gifts made to UKIP. There was no discrimination under EU law, the party did not meet the relevant criteria for relief.
Certain gifts are exempt from Inheritance tax (IHT) including lifetime gifts and gifts on death made to:
- Political parties (s.24 IHTA 1984) where at the last general election prior to the Transfer of value:
- Two members of the party were elected to the House of Commons, or
- One member of the party was elected to the House of Commons and at least 150,000 votes were given to candidates who were members of that party.
- If a Close company makes a transfer of value it is apportioned to the company participators.
At the May 2010 General Election, UKIP failed to get any candidates elected as an MP. Mr Banks and companies he controlled made donations to UKIP and affiliated organizations at times when:
- UKIP was a registered political party under the relevant acts.
- There were UKIP MPs but they had been elected at by-elections.
HMRC assessed Mr Banks to IHT as a participator in the donor companies on the basis that s.24 did not apply.
- The First Tier Tribunal (FTT) agreed, dismissing Mr Banks’ appeal. They concluded he had suffered indirect discrimination as a UKIP supporter compared to if he supported other political parties, but they were not empowered to rewrite s.24 so that it applied to him.
Mr Banks appealed to the Upper Tribunal (UT), claiming:
- The application of s.24 in this way was a breach of his human rights and of EU law. He was being discriminated against due to his political opinions and because UKIP was a ‘new party’.
- The Tribunal must either construe s.24 in a manner consistent with EU law or, if this was not possible, disapply the offending provisions and the FTT had erred in law in not doing this.
The UT dismissed the appeal, finding that the FTT had materially erred in law when it concluded that Mr Banks had suffered discrimination. It set aside and remade the decision of the FTT rather than, as it could have done, remitting it back to the lower court:
- Mr Banks had not established, and the burden of this was on him, that UKIP was a new party. The Tribunal pointed out that UKIP had been established over 23 years ago.
- There was no discrimination against Mr Banks, either directly or indirectly:
- s.24 applies equally to all political parties.
- There was no disproportionate effect on UKIP supporters, compared to the supporters of any other parties who did not meet the s.24 conditions for exemption.
- The aim of s.24 is to provide tax relief on donations to political parties participating in parliamentary democracy by being represented in the House of Commons. It is not to provide relief for donations to individual independent MPs. As the conditions in s.24 are clearly and rationally connected to that aim, s.24 is proportionate and it achieves a fair balance.
Links
Transfers of value
What is a transfer of value for Inheritance Tax (IHT) purposes?
IHT: Gifts
What are the Inheritance Tax (IHT) implications of giving away assets? What exemptions and reliefs are there for gifts?
IHT: Estate planning checklist
This checklist covers some of the essential planning points that taxpayers should know when planning for their estate and inheritance tax.
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