C1. Gifts in general

- Limit on which associated operations are taken into account: must contribute to the loss to T's estate

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The need for a limit on the scope of the associated operation provisions

- "It might be tempting to assume that any event which fell within this wide definition should be taken into account in determining what constituted a transaction for the purposes of section 20(4). However, counsel for the Crown accepted, rightly in my view, that some limitation must be imposed." (Macpherson).

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The nature of the limit: associated operation must contribute to the transfer of value

- The statutory question is not whether there are associated operations but whether a disposition is "effected by associated operations".

- Authorities indicate that for an associated operation to be relevant to identifying a transfer of value it was contribute to the reduction of the estate.

- "An associated operation is relevant only if it is part of the scheme contributing to the reduction of the estate." (Reynaud, §17).

- HMRC agree:

- "In the case of a transfer of value under IHTA84/S3 (1), every associated operation which contributes to the loss to the transferor’s estate (IHTM04054) is a relevant operation. Any other operation, although it may be ‘associated’, is not relevant for the purpose of that provision." (IHTM14828)

- Rysaffe HC seemed to accept that the scope/relevance of associated operations was different for s.3 and s.43 (§30).​​

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Authorities

- Macpherson:

- For the purposes of s.10, an associated operation need not "necessarily per se confer a benefit but it must form a part of and contribute to a scheme which does confer such a benefit" (Macpherson at 176).

- But if the transaction "contributed nothing to the conferment of the gratuitous benefit which had already been effected" it would not be relevant (Macpherson at 176).

- Reynaud:

- T settled shares qualifying for BPR on a trust, the company then purchased its own shares. HMRC argued that this should be treated as a transfer of cash.

- "Here the value of the estates of the brothers were diminished as a result of the gift into settlement alone. The purchase of own shares contributed nothing to the diminution which had already occurred and was not therefore a relevant associated operation." (§18).

- Rysaffe (CoA):

- HMRC attempt to treat 5 settlements made around the same time as a single disposition, and thus settlement (this would affect, at least, the rate of IHT on the 10 year charge - §4). 

- "'Settlement' means any disposition or dispositions of property...whereby the property is for the time being...held in trust..."

- Held that the reference to dispositions including dispositions by associated operations does not apply/is not needed where the basic transaction does amount to a disposition.​

- Instead, it applies where there is a dispute as to whether there is a disposition at all:

- "[23]...The inclusion of "associated operations" in the statutory description of "disposition" is not intended for cases, such as this, where there is no dispute that there was a "disposition" of property falling within section 43(2). They are intended for cases where there is a dispute as to whether there was a relevant "disposition" at all. The CIR may be entitled to invoke the extended description to catch a case which would not be regarded as a "disposition" of property in its ordinary and natural sense."

-Parry:

- UKSC explained that (for the purposes of s.10), to be relevant, the associated operation had to be part of a scheme "actually conferring, and intended to confer, such a benefit" (§77).​

- That was satisfied in Macpherson because the evidence was that the distribution from the trust would not have happened unless the commercia,, but depreciatory transaction, had taken place:

- "In Macpherson, the two elements under consideration were linked in the scheme by a common intention - the trustees would not have made the appointment if the variation had not taken place - and the scheme was one intended to confer, and actually conferring, gratuitous benefit on the son by the appointment of the pictures. The variation agreement therefore satisfied Lord Jauncey’s requirements that it “form a part of and contribute to a scheme which does confer … a [gratuitous] benefit” (my emphasis) and is intended to confer a gratuitous benefit." (Parry, §88)

- It was not satisfied in Parry where the omission to take lifetime benefits following a pension transfer was a continuing intention that pre-dated the transfer:

- "[88] ... The omission had already been decided upon whilst the funds were in the section 32 policy and the sons could have benefitted from it without any move to the PPP. Moving the funds from one policy to the other (the “transfer”, focused upon by the Notice) was not a contributory part of the scheme to confer gratuitous benefit on the sons; it was a step taken solely to ensure that Morayford could not benefit, as the FTT were entitled to find on the very unusual evidence in this case. The omission and the transfer were not therefore, in my view, relevantly associated." (Parry, §88).

Horizontal and vertical aggregation of dispositions

- Rysaffe was an attempt by the Revenue to aggregate five separate dispositions of separate property to separate recipients (horizontal aggregation - see §20).

- Query whether the same applies to vertical aggregation, e.g. single arrangement under which

- A disposes to B who disposes to C.

- A transfers asset to B Ltd and then disposes of B Ltd - is that a disposition of the asset or B Ltd?

- Suggestion at Rysaffe §24 that associated operations may be relevant to determining what property has been disposed of.

- The legislation clearly anticipates that two operations, both amounting to a transfer of value, can be associated operations (s.268(3)).

- This must mean two dispositions can be associated operations (because a transfer of value is based on a disposition).

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Legislation: 

Cases: 

IRC v. Macpherson [1989] AC 159 (HoL);

Reynaud v. IRC [1999] STC (SCD) 185, Judge Avery Jones; 

Rysaffe Trustee Co (CI) Limited v. IRC [2002] STC 872 (Park J); 

CIR v. Rysaffe Trustee Company (CI) Limited [2003] EWCA Civ 356, Mummery, Schiemann, Dyson LJJ;

HMRC v. Parry [2020] UKSC 35;

HMRC manuals:

IHTM14828 - Lifetime transfers: associated operations: restrictions on which operations can be taken into account;  

Commentary: 

See also:

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