Clarke v Mayo
| Jurisdiction | England & Wales |
| Judgment Date | 27 May 1994 |
| Date | 27 May 1994 |
| Court | Chancery Division |
Chancery Division.
Evans-Lombe J.
Christopher Tidmarsh (instructed by the Solicitor of Inland Revenue) for the Crown.
Jonathan Cannan (instructed by Powell & Sykes, Kendal) for the taxpayer.
Capital gains tax - Retirement relief - Taxpayer over 60 - "Material disposal" of shares in family business and sale of business premises - Whether "associated disposal" for purposes of retirement relief -Finance Act 1985 section 70 subsec-or-para (7)Finance Act 1985, s. 70(7)(a)(b) (Finance Act 1985s. 70 was replaced by the Taxation of Chargeable Gains Act 1992 section 164Taxation of Chargeable Gains Act 1992, s. 164).
This was an appeal by the Revenue against a decision of the general commissioners for South Westmorland that retirement relief from capital gains tax was available to a taxpayer in respect of a gain realised on the disposal of a property of which he was part owner.
Until 28 February 1989, when it ceased trading, the taxpayer who had attained the age of 60 in March 1988, had been a full-time director of the family ironmongery company. He held 49.99 per cent of the share capital while his father held 50.01 per cent. The business had traded from premises in Kendal ("the property"), in which the taxpayer owned a one-quarter share, since its incorporation in 1954. The company also traded from other premises at Market Place, Kendal. A sale of the property was completed on 31 January 1989 and some four weeks later, on 28 February, the company ceased trading at the Market Place premises.
On 25 January 1990 the taxpayer's father died bequeathing his 50.01 per cent shareholding to the taxpayer, and, on 28 February 1990, exactly one year after the company ceased trading, the taxpayer disposed of his 49.99 per cent shareholding in the company to his four children by way of gift.
The question was whether the taxpayer was entitled to retirement relief on the sale of the property under the Finance Act 1985 section 69 section 70Finance Act 1985, ss. 69 and 70, and in particular whether the sale of the property was an "associated disposal" within the meaning of Finance Act 1985 section 70 subsec-or-para (7)s. 70(7) in relation to the disposal of the shares which was agreed to have been a "material disposal of business assets" qualifying for relief under the Finance Act 1985 section 69 subsec-or-para (1)Finance Act 1985, s. 69(1).
The Revenue contended that the requirement in the Finance Act 1985 section 70 subsec-or-para (7)Finance Act 1985, s. 70(7)(b)that "immediately before…cessation of the business…the asset was in use for the purposes of that business" was not fulfilled because on the date when the company ceased trading, 28 February 1989, it had not used the property for some four weeks, the sale of the property having been completed on 31 January 1989. The use of the word "immediately" required that the property must have been in use at the instant immediately before cessation. Accordingly, since the property passed out of the use of the business on 31 January 1989, the property was not immediately before the cessation in use for the purposes of the business.
The Revenue also contended that the disposal of the property of which the sale was completed on 31 January 1989 could not form part of a withdrawal by the taxpayer from participation in the business carried on by the company, which withdrawal was constituted by the transfer of his 49.99 per cent shareholding in the company to his children on 28 February 1990. "Participation" in that context meant holding an interest in the business concerned. The property was disposed of 31 January 1989 whereas the material disposal of the interest in the business, which was the transfer of the shares, did not take place until 28 February 1990. Accordingly, there was no sufficient association.
It was conceded by the Revenue that the transfer by the taxpayer of his 49.99 per cent shareholding constituted a material disposal.
Held, dismissing the Revenue's appeal:
1. The words "immediately before…the cessation of the business" should not be construed in isolation but in the context of theFinance Act 1985 section 69 section 70Finance Act 1985, ss. 69 and 70 as a whole.
The legislature clearly intended that relief from capital gains tax should be available for associated disposals of assets where those disposals were part of a withdrawal by a taxpayer from participation in a relevant business where he had attained the age of 60 or retired earlier on grounds of ill health. The requirement that the asset being disposed of was to be in use in the relevant business immediately before the interest in the business itself was disposed of, or that the business ceased, was to ensure that the associated disposal was genuinely part of the withdrawal. Where the appeal commissioners were satisfied that such was the case, they were justified in construing the words "immediately before" as meaning "sufficiently proximate".
2. The question whether there was a sufficient association was a question of fact and therefore not for the court to decide.
1. At a meeting of the commissioners for the general purposes of the income tax for the division of South Westmorland held 5 November 1992 Arthur Frederick Mayo ("the taxpayer") appealed against two assessments to capital gains tax in respect of the chargeable gain arising on the disposal by the taxpayer of his one quarter share on the sale of the freehold property 21/23 Stricklandgate, Kendal ("the property") raised by the inspector.
2. The questions for determination were:
(a) the amount of the chargeable gain arising to the taxpayer as mentioned above before consideration of capital gains tax retirement relief;
(b) whether that chargeable gain qualified for capital gains tax retirement relief under Finance Act 1985 section 69 section 70ss. 69 and 70 of and Finance Act 1985 schedule 20Sch. 20 to the Finance Act 1985; and
(c) if so, the amounts of the net chargeable gain and the tax payable thereon for the year of assessment 1988-89.
3. The taxpayer was represented by Mr J Cannan of counsel and Mr Stephen Clarke, the inspector and district inspector of taxes for the district of Kendal ("the inspector") appeared in person. The commissioners heard unsworn evidence from the taxpayer, Mr J E Mayo the taxpayer's son, Mr I Roper of Messrs Lowe & Whitwell the taxpayer's accountants and Mr Morris also of Messrs Lowe & Whitwell, who were all called by Mr Cannan, and from the said Mr Ackroyd called by the inspector.
4. [Paragraph 4 listed the documents before the commissioners including a statement of facts prepared by counsel for the taxpayer but not agreed to by the inspector, summarised as follows:]
(i) The taxpayer was born on 16 March 1928 and had thus attained the age of 60 at the time the transactions which form the subject of this appeal were carried out.
(ii) The taxpayer owned a quarter share of the property until it was sold to Rugby Securities Ltd.
(iii) A contract for the sale of the property to Rugby Securities Ltd was entered into on 8 June 1988.
(iv) The sale of the property was completed 31 January 1989.
(v) On 28 February 1989 being the accounting date of Musgraves (Windermere) Ltd ("Musgraves") trading by Middletons ceased. Musgraves then commenced trading at Market Place, Kendal.
(vi) Middletons carried on business at Stricklandgate and Market Place, Kendal under the name "Middletons (Kendal) Ltd" and Musgraves carried on business in Windermere under the name "Musgraves Ironmongers". From 1 March 1989 Musgraves carried on business from Market Place, Kendal as "Middletons Ironmongers".
(vii) Throughout the period of ownership of a share of the property by the taxpayer it had been used by Middletons for the purposes of its business.
(viii) Middletons was incorporated on 31 July 1954 to take over the ironmongery and hardware business previously run unincorporated since 1944.
(ix) From the date of commencement of trade up to 28 February 1989 when the trade was transferred to Musgraves, Middletons was a trading company, the taxpayer was a full-time working director and by virtue of his 49.99 per cent shareholding in its ordinary share capital (the balance held by his father Mr F Mayo) Middletons was his family company for the purposes of capital gains tax retirement relief.
(x) The taxpayer's father died on 25 January 1990 and bequeathed his 50.01 per cent shareholding in Middletons to the taxpayer.
(xi) The taxpayer had gifted his 49.99 per cent shareholding in Middletons to his children as follows:
S E Bartles - £1249
W Mayo - £1249
P D Mayo - £1249
J E Mayo - £1252.
(xii) Musgraves commenced trading on 12 July 1976. Its shares were then held in the following proportion:
the taxpayer - 40...
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