16 May 2023

Murphy & Linnett v HMRC

Murphy & Linnett v HMRC [2023] EWCA Civ 497 – Court of Appeal rules in favour of taxpayers on interpretation of Extra-statutory Concession

The case concerns the proper interpretation of ESC B18, which provides inter alia the following concessionary treatment for payments to UK beneficiaries out of non-resident discretionary trusts: “A UK beneficiary of a non-resident trust may claim appropriate credit for tax actually paid by the trustees on the income out of which the payment is made as if the payments out of UK income were from a UK resident trust and within Section 687(1) ICTA 1988”. The issue was whether, on its proper interpretation, that treatment was subject to a limitation, as HMRC contended, that the beneficiary could only claim credit for UK income tax paid by the trustees on income which arose to the trustees not earlier than six years before the end of the year of assessment in which the payment was made to the beneficiary. The Court of Appeal, reversing the Administrative Court, has confirmed that on its natural reading, considered from the perspective of the ordinarily sophisticated taxpayer, there is no such limitation in the relevant part of ESC B18 and that there was in this respect “no ambiguity or relevant qualification”. The Court also considered that that interpretation would tend to be confirmed by a consideration of the EU law context. The Court, agreeing in this respect with the Administrative Court, held that materials which would not be available to the ordinarily sophisticated taxpayer (such as unpublicised HMRC practice) are irrelevant to the proper interpretation of an ESC.

William Massey KC and Ben Elliott acted for the Appellants.

To view a copy of the decision please click here