Stephenson (Inspector of Taxes) v Barclays Bank Trust Co Ltd [1975] 1 WLR 882

Key point

The rule in Saunders v Vautier (1841) 4 Beav 115 was extended to discretionary trusts, such that the several beneficiaries can, if they are sui juris (of age acting independently), collect the trust property and the trust property will go to them as joint tenants
The Saunders v Vautier rule applies separately to the several beneficiaries who are absolutely entitled as co-owners of the trust property, provided that their shares can be severed from the trust without harming the rest of the shares

The Testator disposed of his residuary estate, including shares, to trustees to be held on trust for his daughters and grandchildren who should attain the age of 21 years
In 1969 a deed of family arrangement (allowing beneficiaries to make changes to their entitlement to a trust) was made, under which, part of the trust money appropriated into a fund for the daughters and the daughters released their claims under the trust, with the intention that the remainder of the trust estate shall be transferred to the two granddaughters
However, the trustees did not transfer the remainder of the estate to the grandchildren
The special commissioners, on the trustees’ appeal, discharged the capital gains tax revenue assessment holding that because the trustees’ still withheld the power in dealing with the trust, which the grandchildren could not override, the grandchildren were not absolutely entitled against the trustees per s.22(5) of the Finance Act 1965
The Crown appealed

Allowed the appeal; the granddaughters were absolutely entitled against the trustees

Rights of joint beneficiaries

“In a case where the persons who between them hold the entirety of the beneficial interests in any particular trust fund are all sui juris [ie of adult age and independent] and acting together, (“the beneficial interest holders”), they are entitled to direct the trustees how the trust fund may be dealt with”
“This does not mean, however, that they can at one and the same time override the preexisting trusts and keep them in existence”
“Nor, I think, are the beneficial interest holders entitled to direct the trustees as to the particular investment they should make of the trust fund”
“Of course, the rights of the beneficial interest holders are always subject to the right of the trustees to be fully protected against such matters as duty, taxes, costs or other outgoings; for example, the rent under a lease which the trustees have properly accepted as part of the trust property”: p.889

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Current case

Walton J rejects Mr. Lawton’s submission that “the date of becoming absolutely entitled is the date of actual distribution” because the Finance Act 1969 Schedule 19 paragraph 9 does not define this: p. 890
“I therefore conclude, …, that on the execution of the deed of family arrangement the two grandchildren became absolutely entitled as against the trustees to the whole of the remaining assets of the residuary estate, with the result that section 22 (5) of the Finance Act 1965 applies”: p. 891
“[W]hen the family deed of arrangement was executed the two grandchildren became, for the purposes of capital gains tax, jointly absolutely entitled as against the trustees of their grandfather’s will trusts…”: p.891

This case was significant for extending the approach of the rule found in the prior cases of Re Nelson [1928] Ch 920 and Re Smith [1928] Ch 915, as it now includes several beneficiaries acting separately and not just acting together