The ''Duke of Westminster's case'' was an often cited case in

tax avoidance Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax that is payable. A tax shelter is one type of tax avoidance, and tax havens are jurisdictions that facilitate reduced taxe ...

. The full title and citation was ''Inland Revenue Commissioners v. Duke of Westminster''

936 Year 936 ( CMXXXVI) was a leap year starting on Friday of the Julian calendar. Events By place Europe * June 19 – At Laon, Louis IV, the 14-year old son of the late King Charles the Simple, is crowned King of West Francia afte ...

A.C. 1; 19 TC 490. The

Duke of Westminster Duke is a male title either of a monarch ruling over a duchy, or of a member of royalty, or nobility. As rulers, dukes are ranked below emperors, kings, grand princes, grand dukes, and above sovereign princes. As royalty or nobility, they ...

used to employ a gardener and pay him from his post-tax income, which was substantial. To reduce tax, the Duke stopped paying the gardener's wage and instead drew up a covenant, agreeing to pay an equivalent amount at the end of every specified period. Under the tax laws of the time, this allowed the Duke to claim the expense as a deduction, thus reducing his

taxable income Taxable income refers to the base upon which an income tax system imposes tax. In other words, the income over which the government imposed tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. T ...

and his liability towards

income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...

and

surtax A surtax is a tax levied upon another tax, also known as tax surcharge. Canada The provincial portion of the value-added tax on goods and services in two Canadian jurisdictions, Quebec and Prince Edward Island, was formerly calculated as a sur ...

. The

Inland Revenue The Inland Revenue was, until April 2005, a department of the British Government responsible for the collection of direct taxation, including income tax, national insurance contributions, capital gains tax, inheritance tax, corporation ta ...

challenged this arrangement as tantamounting to

tax evasion Tax evasion or tax fraud is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to red ...

and took the Duke to court. They however lost their case. The judge,

Lord Tomlin Thomas James Chesshyre Tomlin, Baron Tomlin, PC (6 May 1867 – 13 August 1935) was a British barrister and judge who served as lord of appeal in ordinary from 1929 until his death in 1935. Early life and career Born in Canterbury, Kent, the ...

, famously 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.
936 Year 936 ( CMXXXVI) was a leap year starting on Friday of the Julian calendar. Events By place Europe * June 19 – At Laon, Louis IV, the 14-year old son of the late King Charles the Simple, is crowned King of West Francia afte ...
AC 1, 19, quoted at http://www.taxresearch.org.uk/Blog/2012/08/10/the-duke-of-westminster-is-dead-long-live-the-duke-of-westminster/

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 "Ramsay principle" is the shorthand name given to the decision of the House of Lords in two important cases in the field of UK tax, reported in 1982: * ''Ramsay v. IRC'', the full name of which is ''W. T. Ramsay Ltd. v. Inland Revenue Commissio ...

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.

References

Tax avoidance Taxation in the United Kingdom 1936 in British law Grosvenor family United Kingdom taxation case law {{UK-law-stub