Alexander v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 17 January 1991 |
| Date | 17 January 1991 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Ralph Gibson, Nicholls L JJ and Sir Denys Buckley.
Mr Nicholas Warren (instructed by the Solicitor of Inland Revenue) for the Crown.
The executor appeared in person.
The following cases were referred to in the judgments:
Buccleuch (Duke of) v IR Commrs ELR[1967] 1 AC 506
IR Commrs v Crossman & Ors ELR[1937] AC 26
Lynall & Anor v IR Commrs ELR[1972] AC 680
Winter & Ors (Executors of Sir Arthur Munro Sutherland) v IR Commrs ELR[1963] AC 235
Capital transfer tax - Valuation of assets - Jurisdiction of Lands Tribunal - Flat purchased from local authority at a discount under "right to buy" provisions - Claw-back of discount if flat sold within five years - Death of purchaser within five years - Liability to repay discount a charge on property - Whether effect of liability on value to be determined by Lands Tribunal or by special commissioners - section 7 section 8 subsec-or-para (3)Housing Act 1980, sec. 7, 8(3) - Finance Act 1975 section 22 subsec-or-para (1) section 2238 schedule 4 subsec-or-para 7 schedule 10 subsec-or-para 2Finance Act 1975, sec. 22(1), 38, Schs. 4, para. 7(4), 10, para. 2 (replaced by the Inheritance Tax Act 1984 section 4 subsec-or-para (1) section 160 section 222 subsec-or-para (4) section 162 subsec-or-para (2)Inheritance Tax Act 1984, sec. 4(1), 160, 222(4), 162(2), respectively).
This was an appeal by the Crown by way of case stated from a decision of the Lands Tribunal as to the market value of a flat for the purpose of a charge to capital transfer tax under the Finance Act 1975 section 22 subsec-or-para (1)Finance Act 1975, sec. 22(1)(transfer on death).
The deceased, who died on 17 January 1984, acquired on 4 March 1983 a long leasehold interest in a flat in the Barbican. The lease was granted for a consideration of £35,400 pursuant to the "right to buy" provisions of the Housing Act 1980 at a discount of £24,600 under Finance Act 1975 section 7sec. 7 of that Act.
The lease contained a covenant, required by section 8 subsec-or-para (3)sec. 8(3) of the 1980 Act, that the deceased was liable to pay the landlords, the City of London, a percentage of the discount reducing over five years if within that period there should be a disposal within the terms of the covenant. The liability to pay the discount was a charge on the leasehold title. The deceased died before the end of the first full year but death did not constitute a disposal under the terms of the covenant.
The question arose of the value of the lease for capital transfer tax purposes under the Finance Act 1975 section 22 subsec-or-para (1)Finance Act 1975, sec. 22(1) (transfer on death).
In 1986 the Board of Inland Revenue notified the executor of the deceased that they had determined the open market value of the leasehold interest pursuant to Finance Act 1975 section 38sec. 38 of the 1975 Act at the date of the deceased's death in the sum of £52,000. The executor appealed to the Lands Tribunal against that determination under Finance Act 1975 schedule 4 subsec-or-para 7Sch. 4, para. 7(4) of the 1975 Act which provided that any question of the value of land should be determined by that tribunal.
The Lands Tribunal valued the lease at £63,000: the market price as assessed by the district valuer without regard to the charge in respect of the discount. The tribunal itself raised the question of its jurisdiction to decide the appropriate deduction to be made from the open market value to allow for the liability and concluded that it had none. The tribunal stated that the extent of any liability between the deceased and a third party, although it might be a charge on the estate of the deceased, was not a matter affecting the open market value of the property which they had to determine.
The Crown contended that the tribunal was wrong in law to decline jurisdiction to determine the amount by which the market value of the property was to be reduced; that the case should be remitted to the Lands Tribunal to determine the question; and that the Court of Appeal should indicate the principles in accordance with which that determination should be made. The Crown argued primarily that the Lands Tribunal, under Finance Act 1975 schedule 4 subsec-or-para 7para. 7(4) of Sch. 4 to the 1975 Act, had exclusive jurisdiction as regards valuation. The liability to pay a proportion of the discount was an incumbrance which was deemed to reduce the value of the property and therefore fell within the jurisdiction of the Lands Tribunal.
The taxpayer submitted that once the Lands Tribunal had ascertained the open market value of the property as between a vendor and a purchaser, its task was completed.
Following the Lands Tribunal's decision, jurisdiction had been accepted by a special commissioner in an appeal by the taxpayer against the Revenue's valuation. The commissioner held that a deduction from the open market value to reflect the liability of the deceased under the covenant was a question of law for the special commissioners rather than a question of value for the Lands Tribunal. Further, the commissioner held that the liability was a current liability at the date of the death under Finance Act 1975 schedule 10 subsec-or-para 1para. 1(1) of Sch. 10 to the 1975 Act, not a liability falling to be discharged at a future date under Finance Act 1975 schedule 10 subsec-or-para 1para. 1(4). Accordingly the market value of £63,000 had to be reduced by £24,600, the amount of discount that would have been payable on a relevant disposal at the date of death. Although an appeal from the special commissioner's decision was not before the Court of Appeal, the executor submitted that his decision was correct and adopted his reasoning.
Held, allowing the Crown's appeal and remitting the case to the Lands Tribunal for determination in accordance with the judgment:
1. The value in question was the open market value of the leasehold interest in the hands of the deceased immediately before her death under (Finance Act 1975 section 22 subsec-or-para (1)sec. 22(1)). The liability to pay the discount, being charged on the leasehold premises, was an encumbrance on the property withinFinance Act 1975 schedule 10 subsec-or-para 2Sch. 10, para. 2 of the 1975 Act and, as that paragraph directed, should be taken into account to reduce the value of the property. It followed that the question of liability to pay the discount was a question as to the value of land for the Lands Tribunal under Finance Act 1975 schedule 4 subsec-or-para 7Sch. 4, para. 7(4).
2. In valuing that which passed from the deceased on a transfer of value immediately before her death, the Lands Tribunal was required to determine the amount which, on a hypothetical sale, a person would be willing to pay to acquire the lease subject to the obligation which would fall on the hypothetical purchaser to make a repayment to the landlord in the event of a disposal within section 8 subsec-or-para (3)sec. 8(3) of the Housing Act 1980, but on the footing that his own hypothetical acquisition did not itself give rise to such disposal. The hypothetical buyer had to be treated as paying the open market price for an interest which in his hands would be subject to the charge. (IR Commrs v Crossman ELR[1937] AC 26 to be applied.)
The Crown appealed by way of case stated dated 4 June 1990 against a decision of the Lands Tribunal. The question of law for the court was whether the tribunal was correct in law in deciding that it has no jurisdiction to decide liabilities between the vendor and a third party which might well be a charge against the deceased's estate but which did not affect the open market value of the premises at the relevant date.
Further, whether the entity to be valued was the lease taking into account the obligations of the tenant and her successors in title to make repayment to the landlords under the provisions of the Housing Act 1980; and if so, whether the principles exemplified in IR Commrs v Crossman & Ors ELR[1937] AC 26 were applicable.
Ralph Gibson LJ: This is an appeal by the Commissioners of Inland Revenue pursuant to section 3 subsec-or-para (4)sec. 3(4) of the Lands Tribunal Act 1949 by way of case stated under RSC O. 61, r. 1. The appeal raises questions as to the determination of the value for the purposes of capital transfer tax, now inheritance tax, of an interest in land which had been acquired by the deceased under the "right to buy" provisions in the Housing Act 1980 and was at the date of death subject to a charge to secure repayment of the relevant percentage of discount upon early disposal. The right to buy provisions are now contained in part 5Pt. 5 of the Housing Act 1985.
The facts which led to the decision of the Lands Tribunal and the history of this dispute can be summarised as follows.
Mrs Alexander, the deceased, who died on 17 January 1984, acquired on 4 March 1983 a long leasehold interest in a flat, no. 44 Speed House, Barbican. The landlords are the City of London. The lease was granted for a consideration of £35,400 pursuant to the "right to buy" provisions of the Housing Act 1980 at a discount of £24,600 under section 7sec. 7 of that Act.
The lease contained covenants by the tenant to pay to the landlords the relevant percentage of the discount if, within five years of the grant of the lease, there should be a disposal falling within the terms of the covenant, which included an assignment of the lease or the grant of a sub-lease for more than 21 years otherwise than at a rack rent. The covenant was required by section 8 subsec-or-para (3)sec. 8(3) of the Housing Act 1980. The liability to pay was to be a charge upon the leasehold premises. The amount so payable was provided to be reduced by 20 per cent of the discount for each complete year which elapsed after the grant of the lease on 4 March 1983. The deceased died before the end of the first full year...
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