Fetherstonhaugh and Others v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 14 March 1984 |
| Date | 14 March 1984 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal.
Mr. D. C. Potter Q. C. and Mr. D. Shirley (instructed by Messrs. Lee and Pembertons) for the taxpayers.
Mr. J. Parker Q.C. and Mr. M. Hart (instructed by the Solicitor of Inland Revenue) for the Crown.
Before: Oliver, O'Connor, Dillon L.JJ.
Capital transfer tax - Notional transfer of assets on death - Relief for business property - Deceased life tenant of settled land - Land farmed by deceased - Whether land relevant business property - Whether land an asset used in business - Finance Act 1975 section 21Finance Act 1975, sec. 21-Finance Act 1975 section 2323; Finance Act 1975 schedule 4 subsec-or-para 14Sch. 4, para. 14(1)(2); Finance Act 1975 schedule 5 subsec-or-para 3Sch. 5, para. 3(1) - Finance Act 1976 schedule 10 subsec-or-para 2 schedule 10 subsec-or-para 3 schedule 10 subsec-or-para 6Finance Act 1976, Sch. 10, para. 2(1), 3(1), 6 -Finance Act 1981 section 100 subsec-or-para (3)Finance Act 1981, sec. 100(3).
This was an appeal by the taxpayers against a decision of Vinelott J., reported at [1983] BTC 8003 under the name of Finch & Ors. v. I.R. Commrs., in which the judge upheld the determination of the Board of Inland Revenue that farming land, deemed to have been transferred on the death of the life tenant, did not qualify for relief as property consisting of a business or interest in a business.
At the time of the life tenant's death in 1977, relief for business property by way of a reduction in its value of 30% was available if land which he farmed as a life tenant came within the definition of relevant business property contained in the Finance Act 1976 schedule 10 subsec-or-para 3Finance Act 1976, Sch. 10, para. 3(1).
For the taxpayers it was argued that the land constituted relevant business property, and so that part of the value of the life tenant's estate fell to be reduced by 30%. Since the land in question was used in the life tenant's business and its value formed part of the value transferred on his death, that land fell squarely and literally within the definition of "relevant business property" in Finance Act 1976 schedule 10para. 3(1) of Sch. 10 to the 1976 Act and the definition of the value of a business in the Finance Act 1975 schedule 4 subsec-or-para 14Finance Act 1975, Sch. 4, para. 14(2). Any other conclusion led to anomalous and even capricious results. For instance, had the land been owned absolutely by the life tenant, or had the business been carried on by a company he controlled, or had the land been used for a partnership business, then it would have qualified for relief. It would be manifestly unjust for the life tenant to be treated differently and less favourably merely because he happened to be a sole trader. Giving the words of the statutes their ordinary and natural meaning the land qualified for relief.
It was argued for the Crown that the assets of a business for the purposes of Finance Act 1975 schedule 4 subsec-or-para 14Sch. 4, para. 14(2) of the 1975 Act did not include land in which the life tenant had only a beneficial life interest. In any event,Finance Act 1975 schedule 4 subsec-or-para 14Sch. 4, para. 14(2) did not define the business but concerned valuation only. Even if the life interest fell to be included as an asset for valuation purposes, it was an asset of no value. The amendment of Finance Act 1976 schedule 10para. 3(1) of Sch. 10 to the 1976 Act by the Finance Act 1981, Finance Act 1981 section 100sec. 100, in respect of settled land, demonstrated the correctness of the Crown's interpretation; namely, that the life tenant's land was not an asset of the business and did not constitute relevant business property, so did not qualify for relief.
Vinelott J. found for the Crown primarily as a matter of the construction of Finance Act 1975 schedule 4 subsec-or-para 14para. 14(2) of Sch. 4 to the 1975 Act. The taxpayers appealed.
Held, allowing the taxpayers' appeal (Dillon L.J. dissenting):
1. Once the settled land was deemed by Finance Act 1975 schedule 5para. 3 of Sch. 5 to the 1975 Act to be an asset of the deceased, there was no ground for excluding it from the assets used in the business for the purposes of Finance Act 1975 schedule 4 subsec-or-para 14para. 14 of Sch. 4, or for including it at a value less than that statutorily attributed to it in the overall valuation of the transfer of value.
2. The value of the settled land fell to be included in the net value of the business of the deceased, for the purposes of relief underFinance Act 1976 schedule 10 subsec-or-para 2para. 2(1) of Sch. 10 to the 1976 Act for relevant business property.
3. The provisions of the 1981 Act could not be considered in determining the construction of the earlier statutes since there was no ambiguity in the 1975 and 1976 Acts.
(Note: The Finance Act 1981, Finance Act 1981 section 100sec. 100 added a new subpara. (d) to Finance Act 1976 schedule 10para. 3(1) of Sch. 10 to the 1976 Act, giving relief at a rate of 30% in respect of land used for the purposes of a business carried on by a person entitled to an interest in possession in the land. This applies to transfers of value made on or after 10 March 1981.)
The taxpayers, David Fetherstonhaugh, John Beazley and Sir Owen Wynn, Baronet, appealed from the decision of Vinelott J. given on 2 December 1982, whereby it was adjudged that farming land deemed to have been transferred on the death of a life tenant did not qualify for relief as property comprised in a business.
By a notice of appeal dated 30 December 1982 the taxpayers appealed on the grounds that:
1. The judge was wrong in his construction of Finance Act 1976 schedule 10para. 3(1)(a) of Sch. 10 to the Finance Act1976.
2. The judge was wrong in his construction of Finance Act 1975 schedule 4 subsec-or-para 14para. 14(2) of Sch. 4 to theFinance Act 1975 in the context of Finance Act 1976para. 3(1)(a) and of Finance Act 1976 schedule 10para. 6 of Sch. 10 to the Finance Act 1976.
3. The judge ought to have held that the settled land more particularly referred to in the originating summons as reissued in respect of which relief from capital transfer tax for business property was claimed pursuant to Finance Act 1976 schedule 10Sch. 10 to theFinance Act 1976 qualified for such relief.
Oliver L.J.: This is an appeal from an Order made byVinelott J. on 2 December 1982, declaring that in relation to the transfer for value on the death of Edward Watkin Williams Wynn, the part of the transfer which was attributable to "relevant business property" did not extend to any part of the Coed Coch Estate of which the deceased was, at the time of his death, the tenant for life under the Settled Land Act 1925.
The matter came before Vinelott J. by way of appeal on a point of law pursuant to Finance Act 1975 schedule 4para. 7(3) of Sch. 4 to the Finance Act 1975, against a determination of the Revenue under Finance Act 1975para. 6(1) of the same Schedule, and it may be convenient, before adverting to the agreed facts, to refer to the principal statutory provisions out of which the point to be determined arises. Finance Act 1975 section 22 subsec-or-para (1)Section 22(1) of the Finance Act1975 provides that on the death of any person after the passing of the Act, capital transfer tax shall be charged as if, immediately before his death, he had made a transfer of value and the value transferred by it had been equal to the value of his estate immediately before his death.
Under Finance Act 1975 section 23 subsec-or-para (1)sec. 23(1), the estate is the aggregate of all the property to which the deceased was beneficially entitled, subject to certain exceptions immaterial for present purposes, and as regards settled property,Finance Act 1975 section 21sec. 21 applies to it the provisions of Finance Act 1975 schedule 5 subsec-or-para 3Sch. 5, para. 3(1) of which provides that a person beneficially entitled in possession in settled property shall be treated as beneficially entitled to the property in which the interest subsists.
Finance Act 1975 schedule 8 schedule 9Schedules 8 and 9 to the Act contain provisions for relief in respect of property occupied by the deceased for the purposes of agriculture (so long as it has been so occupied for not less than two years prior to the death) and in respect of woodlands. These provisions have an historical relevance in the instant case, but it is unnecessary to refer to them in any detail. For present purposes, the important provisions are those contained in Finance Act 1975 schedule 4 subsec-or-para 14para. 14 of Sch. 4, and the provisions of Finance Act 1976 schedule 10Sch. 10 to the Finance Act 1976. The former is concerned with the payment and calculation of tax where the estate of the deceased consists of or includes a business or an interest in a business. Finance Act 1975Paragraph 14(1) enables the person liable to pay tax to pay by instalments where the tax payable on the value transferred by a chargeable transfer made on death "is attributable to the net value of a business or of an interest in a business".
Finance Act 1975Paragraph 14(2) provides as follows:
For the purposes of this paragraph the net value of a business is the value of the assets used in the business (including goodwill) reduced by the aggregate amount of any liabilities incurred for the purposes of the business; and in ascertaining for the purposes of this paragraph the value of an interest in a business, no regard shall be had to assets or liabilities other than those by reference to which the net value of the business would have fallen to be ascertained under this paragraph if the tax had been attributable to the entire business.
Apart from this option to pay by instalments, the Act made no special concessions in relation to a business owned by the deceased or in which he was interested.
Some relief for business property was, however, introduced by the Act of...
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