The Duke of Westminster's case was an often cited case in tax avoidance. The full title and citation was Inland Revenue Commissioners v. Duke of Westminster [1936] A.C. 1; 19 TC 490.
The Duke of Westminster employed a gardener and paid him from the Duke's substantial post-tax income. To reduce tax, the Duke stopped paying the gardener's wage and instead drew up a covenant agreeing to pay an equivalent amount. Under tax laws of the time, this allowed the Duke to claim a deduction so as to reduce his own taxable income and thus reduce his liability to income tax and surtax.
The Inland Revenue lost their case against the Duke. Famously, Lord Tomlin said
Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow tax-payers may be of his ingenuity, he cannot be compelled to pay an increased tax.
Although this ruling was attractive for others seeking to avoid tax legally by creating complex structures, it has since been weakened by subsequent cases where the courts have looked at the overall effect. An example of the courts' later more restrictive approach was the Ramsay principle where, if a transaction had pre-arranged artificial steps that served no commercial purpose other than to save tax, the proper approach was to tax the effect of the transaction as a whole.
Video Duke of Westminster's Case
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Source of the article : Wikipedia
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