Commissioners of Inland Revenue v George and Another

JurisdictionEngland & Wales
JudgeLord Justice Carnwath,Lady Justice Hale
Judgment Date05 December 2003
Neutral Citation[2003] EWCA Civ 1763
Docket NumberCase No: C3/2003/0546
CourtCourt of Appeal (Civil Division)
Date05 December 2003

[2003] EWCA Civ 1763

IN THE SUPREME COURT OF JUDICATURE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM CHANCERY DIVISION

(MR JUSTICE LADDIE)

Before :

Lady Justice Hale And

Lord Justice Carnwath

Case No: C3/2003/0546

Between:
Philip William George And Ivor Bernard Loochin (As executors Of the Will Of Elsie Fanny Stedman, Deceased)
Appellants
and
The Commissioners Of Inland Revenue
Respondent

Mark Herbert Esq., QC and Robert Argles Esq. (instructed by Birkett Long) for the appellants

Hugh McKay Esq. (instructed by Solicitors for Inland Revenue) for the respondent

Lord Justice Carnwath

Introduction

1

This is an appeal by the executors of the will of Elsie Fanny Stedman, who died in August 1998. It concerns the inheritance tax payable on her interest in a company called Dunton Park Caravan Sites Limited ("the Company"). At the time of her death, she held 85 per cent of the shares in the Company. The deceased's daughter, Mrs Purcell is a director of the Company and has run the business since her father's death in 1984.

2

The Company owned and operated a caravan site business. The main components were a residential caravan park, a site for caravan storage, and a club for residents and others. The issue is whether there is an entitlement to 100% business property relief on the transfer of those shares. That depends, in simple terms, on whether or not the business consisted "wholly or mainly of… making or holding investments". The Special Commissioner (Dr John Avery Jones) held that it was not; and therefore that business property relief was available. That decision was reversed by Laddie J. The executors appeal to this Court.

3

This is the first time this question has been considered by the Court of Appeal. We have been shown a number of decisions of the Special Commissioners in which varying conclusions have been reached in relation to such businesses. This is perhaps not surprising. One consequence of the relative imprecision of the statutory test is that the right to business property relief may depend on fine distinctions between businesses, which, to their owners, and for most practical and economic purposes, are virtually identical.

4

No doubt it was such considerations, which led the Revenue, in the context of income and corporation tax, to adopt an extra-statutory concession (B29):

"Where the proprietor of a caravan site carries on material activities associated with the operation of that site which constitute trading, there may be included as the receipts of that trade any site income from the lettings of pitches for static or touring caravans, and any income from letting caravans where the letting does not of itself amount to a trade."

It is not suggested this gives any substantial assistance in the present case. Mr Herbert relied on it as indicating that the same caravan business could generate both "investment" income and "trading" income; but that is not in dispute. The existence of the concession, however, may help to explain why the issue has not given rise to more general controversy in other areas of tax.

5

A further consequence of the form of the legislation is that drawing the dividing line in a particular case is a matter for the Commissioners, as the tribunal of fact. Appeal to the High Court is on a question of law only. That requires either the finding of a specific mis-direction as to the law, or a conclusion that the Commissioners have acted "without any evidence or upon a view of the facts which could not reasonably be entertained." ( Edwards v Bairstow [1956] AC 14, 29).

The statute

6

The relevant provisions are in the Inheritance Tax Act 1984 (" IHTA 1984"). Inheritance tax is charged on a "transfer of value" made by an individual (ss 1,2). On the death of any person, tax is charged as if, immediately before death, there were a transfer of value equal to the value of the person's estate (s 4). Part V of the Act gives various forms of relief from tax, one of which is relief on business property.

7

Section 104(1) provides:

"(1) Where the whole or part of the value transferred by a transfer of value is attributable to the value of any relevant business property, the whole or that part of the value transferred shall be treated as reduced –

(a) in the case of property falling within section 105(1)(a)(b) or (bb) below, by 100% …"

8

"Relevant business property" is defined by section 105 which, insofar as relevant, provides:

"(1) Subject to the following provisions of this section … in this Chapter "relevant business property" means, in relation to any transfer of value, —

(a) property consisting of a business or interest in a business,

(b) securities of a company which are unquoted and which either by themselves or together with other such securities owned by the transferor and any unquoted shares so owned gave the transferor control of the company immediately before the transfer;

(bb) any unquoted shares in a company …

(3) A business or interest in a business, or shares in or securities of a company, are not relevant business property if the business or, as the case may be, the business carried on by the company consists wholly or mainly of one or more of the following, that is to say, dealing in securities or shares, land or buildings, or making or holding investments." (emphasis added)

9

The appeal turns on the correct interpretation of the emphasised words, as applied to the facts in this case. For ease of presentation, to describe activities falling either side of the statutory line, I shall use (as convenient, if inelegant, epithets) the terms: "investment" and "non-investment".

The issue in the case

10

The area of dispute is very narrow. Starting from the wording of section 105(3) three points seem clear (and, I think, are undisputed):

i) The business did not consist of, or include, "dealing in… land or buildings", or "making… investments";

ii) It did include "holding investments", insofar as it involved holding land for the purpose of receiving licence fees for stationing mobile homes and for caravan storage; but

iii) It was not "wholly" that of holding investments, insofar as it undoubtedly included some other activities carried on for profit (such as the sale of caravans, and running the club).

11

The question, therefore, is whether the business was "mainly" that of holding investments. For this purpose, the principal areas of debate have been: first, the correct allocation between "investment" and "non-investment" of the various activities involved in operating the site, including, in particular, the services provided for the residential park; and, secondly, in the light of that allocation, whether the "investment" element of the business was predominant.

Authorities

12

Although it is common ground that the exploitation of a proprietary interest in land for profit is in principle an "investment" activity, I would agree respectfully with the Commissioner's comment as to the wide "spectrum" involved; and with his view that cases relating to different taxes and different subject matter are unlikely to be helpful. He said:

"It is not in dispute that the Company carries on a business; the question is whether it is a business consisting mainly of holding or making investments. There is a spectrum at one end of which is the exploitation of land by granting a tenancy coupled with sufficient activity to make it a business, which may be activity in granting tenancies rather than activity in relation to the tenancy once granted. At the other end of the spectrum, while land is still being exploited, the element of services means that there is a trade, such as running a hotel, or a shop from premises owned by the trader. Normally for income tax, leaving aside services for which a separate charge is made, the income must be either income from land or trading profits. Here the concept of trade is irrelevant and one is required to determine whether the business of the company consists mainly of making or holding investments or some other business. Although I was referred to a number of income tax cases, I do not find these helpful on this issue." (para 12)

13

I would also agree with the Commissioner's comment on the previous Special Commissioner decisions that they are generally distinguishable, either on the facts, or because the arguments were different. He said:

"The argument that the business of a residential caravan site is mainly the provision of services was not put forward in any of the previous cases before the Special Commissioners, and the attempt to put it forward on appeal in Weston did not succeed. In Powell [1997] STC (SCD) 181 a long-term caravan business was held to be the business of holding investments but the site was in a run-down state (p184b) and there was no evidence of any business activity beyond the receipt of income from caravan rents (p186j). In Hall v IRC [1997] STC (SCD) 126 there was a different type of caravan park with the caravans occupied only in the summer (p 128g). It was assumed that receiving rent from them was the business of holding investments and the decision was that commission on the sale of caravans was ancillary to the main business. In Furness v IRC [1999] STC (SCD) 232 (in relation to the long-term caravans), and Weston v IRC [2000] STC (SCD) 30 it was assumed that the residential caravan business was that of holding investments and the issue was whether this was the main business, which it was not in Furness and it was in Weston. Accordingly these cases do not help me in relation to the Appellant's argument in this case.

Farmer v IRC [1999] STC (SCD) 321 is helpful as it concerned a farm which also had...

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