Vestey v Inland Revenue Commissioners [1979] 3 All ER 976

Facts

• The Vestey family, leading figures in meat production, established trusts designed to lower their tax liabilities.
• The Inland Revenue initially permitted exemptions for these trusts, effectively accepting the Vestey family's tax planning arrangements.
• At a later stage, the Revenue decided to revoke these exemptions and claimed outstanding taxes from the Vesteys.
• The Vestey family argued that the Revenue could not withdraw previously granted exemptions.

Issues

1. Whether administrative allowances or exemptions, not set by statute, are legally binding on the Inland Revenue.
2. Whether the Revenue is entitled to alter or revoke previously approved tax exemptions for trust arrangements.
3. Whether taxpayers can rely on legitimate expectations based on earlier Revenue practices or approvals.

Decision

• The House of Lords held that allowances or exemptions not prescribed by law do not legally bind the Inland Revenue.
• Such allowances were deemed to reflect administrative discretion, not statutory obligation, and may be changed or withdrawn.
• The Lords confirmed that the Revenue may alter its enforcement of tax laws, even if this reverses prior administrative exemptions.
• Taxpayers cannot rely on such allowances unless the Revenue gave explicit and specific assurances of their continuance.

Legal Principles

• Administrative practices or allowances created by the Revenue are not enforceable unless anchored in statute.
• Legitimate expectation arises only through specific and explicit assurances from the Revenue, not merely from past use.
• The case reinforced the requirement that trusts and other tax planning structures directly comply with tax statutes rather than rely on mutable administrative allowances.

Conclusion

Vestey v Inland Revenue Commissioners established that the Revenue’s administrative allowances, if not given by law or by explicit assurance, may be withdrawn at any time. Taxpayers and professionals must closely comply with statutory tax requirements, as reliance on discretionary or historical exemptions carries significant risk, particularly in trust-based estate planning.