"}Before the 1960s, the basic wealth management problem for every high-income Briton was that capital gains weren\u2019t taxable, but income was. If you earned money from selling services, then it\u2019d be taxable income, but if earned money from the sale of capital, then it wouldn\u2019t be taxed at all.\u00a0
David Lough\u00a0No More Champagne: Churchill and His Money\u00a0(Head of Zeus, 2015) tells the delightful\u00a0story of Winston Churchill and his lawyers\u2019 long battles to evade tax on his personal income, including one ridiculous attempt to get the receipts from his syndicated newspaper articles characterized as sales of capital rather than as income.\u00a0
In 1941, the Chairman of the Inland Revenue advised the Chancellor the Exchequer that Churchill\u2019s lawyers had been \u201cunable to produce any evidence which could lead me to the view that these were not taxable.\u201d There was no reason it should be: the contracts were for a fixed sum and didn\u2019t involve the entire copyright, so the receipts were transparently in the nature of income, not sales of capital. \u201cHe wants to argue that each excerpt was a capital transaction in itself: but it seems to me a hopeless contention,\u201d the Commissioner advised his staff. \u201cHowever we must listen.\u201d\u00a0
On May 19, 1942, weeks after the fall of Singapore,\u00a0Churchill spent the afternoon away from the House of Commons speaking with his newly-hired solicitor about the prospects of an appeal:
I was warned that he would probably give me ten minutes, that I must be very brief and that I must tell him (if such was the case) that he had two or more courses open to him. Thereafter he would instantly make up his mind which course he would pursue\u2026 I was ushered into the Cabinet Room\u2026 and started off and said my piece which I had carefully prepared. [Churchill] after a short time got up and started walking around the table, talking as he did so, with the result that, when he arrived at each end he was completely out of earshot. \u2026 \u201cIf I appeal, will it be entirely private; can anyone get to know about it?\u2019 I replied that it would be entirely private before the Commissioners, but if we won, they could appeal further and then the hearing would be in public. \u2026 And so it went on. My \u201cten minutes\u201d was eventually turned into one and a half hours, but when I left I came away with instructions to lodge an appeal. I remember walking down Whitehall and buying an evening paper, the headline of which was \u201cWhy wasn\u2019t Churchill in the House Today?\u201d and at least I felt that was a question which I could answer with some conviction!Churchill won that battle, even though he really shouldn\u2019t have \u2013 the appeal was decided by Inland Revenue\u2019s general commissioners, who ruled in Churchill\u2019s favor at the end of September 1942 \u2013 but the earnings from those articles were small compared to Churchill\u2019s copyright in his books. Churchill cleared \u00a350,000 \u2013 untaxed \u2013 from assigning the copyright in his Life of Marlborough to Filippo Del Giudice\u2019s production company, Two Cities, and another\u00a0\u00a350,000 \u2013 untaxed \u2013 from assigning the copyright in his History of the English Speaking Peoples\u00a0to Sir Alexander Korda and MGM.
The great battle would be over Churchill\u2019s memoirs. He postponed writing them for years; he couldn\u2019t figure out how to make them pay. Even after the war, the top rates on personal income would be punitive\u00a0\u2013 97.5 per cent during the war, 92.5 per cent in the October 1945 budget, and back up to 97.5 per cent in the April 1946 budget \u2013 so Churchill needed some way to transform income into capital.\u00a0
Soon enough, Churchill\u2019s lawyers figured it out. Winston Churchill would gift his personal papers to a trust administered by his wife, Clementine, and his son, Randolph, whereon the trust would sell the copyright in the papers to the publishers. Then the publishers would hire Churchill to edit the papers \u2013 that is, write the memoirs \u2013 for a nominal sum. And it worked!
\u2026 it was an offer from the Eton-educated American newspaperman Marshall Field III that gave Churchill\u2019s advisers the kernel of the idea which they eventually used to avoid a large measure of tax. While offering Churchill a five-year deal worth $1.25 million for newspaper articles, Field mentioned that his Chicago Sun would also be part of a consortium bidding at least $1 million for the memoirs. He then suggested that, before writing anything, Churchill should gift his personal papers to a trust for his children and grandchildren. The trust could then sell the book rights before employing him for a much lower sum to \u2018edit\u2019 the text \u2013 only this last link in the chain would attract tax.
\u2018They certainly disclose an interesting situation in America, if only it were possible for us to take advantage of it,\u2019 Churchill confided to Lord Camrose.
[\u2026]
By mid-February Charles Graham-Dixon had prepared a detailed tax scheme for Churchill\u2019s memoirs. He had discounted the safest option, the so-called \u2018tin-box\u2019 scheme that would delay publication until after Churchill\u2019s death, on the assumption that Churchill or his family would need the money during his lifetime. Instead, he advised, Churchill should gift his papers to a family trust before he started writing his memoirs; then the trustees should sell the copyright of the papers, for a lump sum, to a publishing group; finally that group should make its own separate arrangements with Churchill to write the memoirs for a lesser sum.
The effect of divorcing the documents\u2019 ownership from the memoir\u2019s authorship, he contended, would be to leave the publisher\u2019s money in the trustees\u2019 hands as capital, while only Churchill\u2019s fee as an author would attract any tax. He stressed two points: Churchill must gift the documents before writing a word; and the trustees, not Churchill, must settle the publishing contract. The prospects for success, Graham-Dixon thought, were \u2018reasonable\u2019.
[\u2026]
Arriving back in Britain in late March, Churchill continued to claim publicly that he had not made a final decision whether to publish his memoirs. Within a week, however, he had asked Bill Deakin to help him write them and his solicitor Anthony Moir to establish the trust for his papers. Moir\u2019s first draft suggested that the trust should include all papers from Churchill\u2019s birth up to the end of the war; that Churchill should appoint the trustees; that they should be able to publish only with his permission; and that, at his death, the trust\u2019s capital should be divided equally among his children. A firm believer in primogeniture, Churchill changed Randolph\u2019s share to a half.
The Chartwell Literary Trust came into being on 31 July 1946 with Clementine, Brendan Bracken and Professor Lindemann (now Lord Cherwell) as its first trustees. Its official objective was to safeguard Churchill\u2019s papers for posterity, without any mention of the tax advantages: to this end, Churchill expressed his wish that the trustees should eventually pass the papers on to Randolph or Randolph\u2019s own son Winston, one of whom he hoped would write his official biography. Churchill was aware that the duke of Marlborough was considering selling Blenheim in the aftermath of war, so he wanted to make sure that the papers would \u2018remain intact at Chartwell and it may well be that my son or grandson will ultimately give them to the National Trust, should Chartwell itself be vested in that Body\u2019.
[\u2026]
Meanwhile [in 1948] the Inland Revenue was on the point of deciding whether or not Churchill\u2019s complicated tax scheme to shelter the majority of the income earned by The Second World War was sound. On their decision rested a much greater sum of money than Churchill had lost through the farms. The local tax inspector, a Mr Boarland, had asked to see a copy of Churchill\u2019s contract with The Daily Telegraph and any other \u2018relevant\u2019 document, which Anthony Moir took to mean the parallel agreement between the newspaper and Churchill\u2019s Literary Trust. After consulting Churchill Moir decided against volunteering any extra documents, but instead he disclosed to Boarland:
\u201cIn July 1946, Mr Churchill created a Settlement of cash, a large number of personal records and memoranda covering his life both public and private during the period of approximately 1906 to 1945, papers formerly belonging to Lord Randolph Churchill and a casket containing letters from the First Duke of Marlborough, which are of considerable value and were given to him by the Queen of the Netherlands at the close of the War. Under this Settlement no benefit, whether pecuniary or otherwise was reserved to Mr Churchill and this document is not in his possession or under his control.\u201d
Churchill had sold his early copyrights after the war while \u2018retired\u2019 as an author, Moir added, but since resuming his writing career on 1 September 1946 Churchill had received twelve payments. Most of them, he contended, were \u2018capital moneys\u2019 for the Secret Session Speeches. However, Moir ended his carefully worded letter by offering the tax inspector one small morsel: Odhams Press had paid \u00a3500 to reproduce sixteen of Churchill\u2019s paintings in a new version of Painting as a Pastime, which he admitted could possibly be construed as a royalty and therefore subject to tax. \u2018If the point is pressed Mr Churchill will submit, without prejudice, to an assessment in respect of this sum,\u2019 he offered.
There followed a \u2018very friendly\u2019 meeting at the tax inspector\u2019s office, during which Moir insisted that Churchill\u2019s prime motive for setting up the trust had naturally been to safeguard these \u2018vitally important documents\u2019. For more than a month the most senior minds at the Inland Revenue, including the chief inspector of claims (Intelligence Section), pored over Moir\u2019s letter and the documents, but they could find no \u2018catch\u2019.
Churchill\u2019s solicitor was confident of the final outcome and in February all five members of the Inland Revenue Board signed a piece of paper that allowed Boarland to confirm that \u2018no liability to Income tax arises under the present law in respect of the \u00a3375,000 payable by The Daily Telegraph to the Trustees \u2013 either on Mr Churchill or on the trustees.\u2019
These days, of course, legislation has reduced the tax preference on this transaction \u2013 it might even have made it unworkable \u2013 but it\u2019s a stirring story. If Winston Churchill was, as A.J.P. Taylor called him, \u201cthe savior of his country\u201d, then his\u00a0lawyers were the men who saved the savior of their country \u2013 well, saved him a lot of money, at least.