Wensley Stock v Neal – English High Court of Justice finds that royalties received by a trust for the author’s grandchildren were capital for trust law purposes

The author of the Thomas the Tank Engine series, who had previously assigned all copyright to the series to the publishers, settled a trust for his seven grandchildren aged seven to 17 (the “Settlement”) by making an equitable assignment to the trustees of one-half of his contractual right to receive royalties from the publishers (the “Royalties”), which were described in the trust deed as constituting the initial trust fund. At issue was whether the Royalties were income for trust law purposes, so that they would, to the extent accumulated, be subject to a higher rate of tax payable to HMRC (the second defendant) than if they were capital for such purposes.

The trust deed provided that, until a beneficiary turned 21, the trustees had the power to apply the income of that beneficiary's one-seventh share for his or her maintenance, education, or benefit, with any income not so applied to be accumulated as an accretion to the one-seventh share. Upon the beneficiary attaining the age of 45, they would take the capital of their one-seventh share absolutely.

Richards J found that the trust deed “provisions are entirely consistent with the proposition that, viewed objectively, the Settlement treats Royalties received, together with the right to receive those Royalties, as capital of the Settlement with the income generated by the investment of those Royalties constituting the income of the Settlement.” He further stated:

The Settlement manifests a clear intention that the Beneficiaries should not have too much, too young. That is entirely consistent with, and supportive of, an interpretation that, once they have attained the age of 21, their entitlement should be to income generated by investment of the Royalties. Only on attaining the age of 45 should the Beneficiaries be entitled to call for payment of the greater sums consisting of a share of the Royalties themselves.

Although he also noted the parties’ agreement that “the question of whether a particular receipt is income or capital for trust law purposes may not be conclusively determined by a construction of the trust instrument in question or inferences as to a settlor's intention,” Richards J also reviewed case law on the aligned distinction between the tree and its fruit, and concluded:

Overall, I regard it as much more realistic to regard the Royalties as fruit of the copyright in the Railway Series rather than as fruit of a right to receive payment.

Accordingly, as the Settlement did not hold the copyright, this reinforced his conclusion that the Royalties were capital to it.

Neal Armstrong. Summary of Wensley Stock & Ors v Neal & Anor [2026] EWHC 1823 (Ch) under s. 108(3).