Stock v Neal: Thomas the Tank Engine royalties are trust capital, High Court rules

Royalties flowing to a settlement made by the author of the Thomas the Tank Engine books are capital rather than income for trust law purposes, the High Court has held, rejecting arguments advanced by HMRC and a court-appointed representative defendant.

In Stock v Neal [2026] EWHC 1823 (Ch), handed down on 17 July 2026, Mr Justice Richards determined a Part 8 claim brought by the trustees of a settlement executed by the Reverend Wilbert Vere Awdry on 10 March 1987. It was common ground that the royalties are income for income tax purposes; the categorisation for trust law purposes carried consequences both for administration and for HMRC's entitlement to tax at the trust rate under section 480 of the Income Tax Act 2007.

The settlement, made on accumulation and maintenance trusts for Reverend Awdry's seven grandchildren, comprised one half of the royalties payable to him under a 1985 deed of assignment with William Heinemann Limited, under which he had assigned the copyright in the Railway Series. The parties agreed that the settlement effected an equitable assignment of half of the contractual right to receive the royalties, and that no part of the copyright itself was ever a trust asset.

The defendants argued that the trust fund could only be the contractual right, with the royalties received being the fruit of that right and therefore income. Richards J disagreed. Read as a whole, the settlement distinguished between the trust fund and the income of it, and its investment powers made little sense if the fund consisted only of a chose in action. The starkest difficulty with the defendants' reading lay in clause 4(3), under which a beneficiary takes the settled share absolutely at 45. On that construction, little of substance would change at 45, since a beneficiary would already have been receiving a share of the royalties themselves from the age of 21. The judge found it far more plausible that 45 was intended as a watershed, consistent with a settlement whose surrounding circumstances showed a clear intention that young beneficiaries should not have too much, too young.

Royalties paid to the settlement in 1987/88 totalled £141,532, which on the defendants' construction would have yielded roughly £20,000 each per year, said to be worth around £60,000 today. The judge declined to engage in an impressionistic assessment of whether that was too much for a 21 year old, resting instead on the settlement's evident intention that beneficiaries obtain more at 45 than before.

The defendants sought to extract from the mining lease authorities and Davidson's Trustees v Ogilvie a principle that royalties are trust income where generated by the settlor's lifetime exploitation. Richards J held that those cases are directed at divining intention where it is otherwise unclear, and leave no room for inference where, as here, the instrument speaks plainly.

Turning to the income stream cases from Crawley v Crawley through Re Fisher, Re Hey's Settlement Trusts and Re Guinness's Settlement, the judge followed Goff J's survey and applied the fruit and tree analysis: there can be no income without a capital asset in the same fund producing it. The royalties are most realistically the fruit of the Railway Series copyrights, which the trustees have never owned. Characterising the tree as the right to receive payment was dismissed as unduly reductionist and at odds with Freer's Trustees v Freer.

PL Travers Will Trust v HMRC, concerning the Mary Poppins royalties, was distinguished on the footing that those trustees held part of the relevant copyright.

The parties were invited to agree an order, with consequentials including costs to be resolved at a further hearing if necessary.