Hughes v Viner
| Jurisdiction | England & Wales |
| Judgment Date | 28 February 1985 |
| Date | 28 February 1985 |
| Court | Chancery Division |
Chancery Division.
Mr. R. Carnwath (instructed by Solicitor of Inland Revenue) for the Crown.
Mr. W.G.S. Massey (instructed by Messrs. Latin & Masheder) for the taxpayer.
Before: Walton J.
Case stated - Jurisdiction of court to hear and determine question of law - Taxpayer not notified that case stated transmitted to High Court - Whether statutory time limit for notice mandatory - Taxes Management Act 1970 section 56 subsec-or-para (5)Taxes Management Act 1970. sec. 56(5).Relief - Interest - MIRAS - Loan for purchase or improvement of land - Loan to purchase property occupied as only or main residence - Purchase of new property intended for use as only or main residence - New property never occupied - Whether taxpayer entitled to relief on interest payable under loan raised to purchase new property - Finance Act 1974 schedule 1 subsec-or-para 4 schedule 1 subsec-or-para 6Finance Act 1974, Sch. 1. para. 4(1)(a), 6(1).
This was an appeal by the Crown against a decision of the General Commissioners that the taxpayer was entitled to relief in respect of interest paid on a loan raised to purchase a house intended as a principal residence which was never occupied.
The taxpayer purchased a house in Chester in 1973 at a cost of £27,500 with the aid of a building society mortgage of £15,000. He occupied the house as his only or main residence. In March 1980 the taxpayer placed the Chester house on the market but no buyer was ever found. In August 1980 he purchased another house in Liverpool with the aid of a second loan, intending to use it as his main residence and to sell the Chester house. The cost of the Liverpool house was £70,000 which was financed initially through £6,000 from the taxpayer's own funds, a building society mortgage of £25,000 and a bridging loan with the bank of £54,000 of which £15,000 was applied in repaying the building society advance on the Chester house of £15,000. Contrary to an initial surveyor's report, the Liverpool house proved to be grossly defective and was placed on the market to sell in February 1981. It was eventually sold in September 1981 for £63,000 and had never been occupied by either the taxpayer or his family. The Chester property was taken off the market.
The taxpayer claimed relief under Finance Act 1974 schedule 1 subsec-or-para 6para. 6(1) of Sch. 1 to the Finance Act 1974 on the interest payments in 1980-81 and 1981-82 on the loans raised in respect of the Liverpool house. The tax inspector refused the claim to relief on the ground that the taxpayer had never used it as his only or main residence so that the interest payments were not eligible for relief under Finance Act 1974 schedule 1 subsec-or-para 4para. 4. The taxpayer appealed contending that he was not disqualified under Finance Act 1974 schedule 1 subsec-or-para 4para. 4 because that paragraph took effect subject to the provisions of Finance Act 1974para. 6(1). The General Commissioners upheld the taxpayer's claim and the Crown appealed.
The Revenue failed to send notice in writing of the fact that the case had been stated together with a copy of it to the taxpayer at or before the time it was transmitted to the court under Taxes Management Act 1970 section 56 subsec-or-para (5)sec. 56(5) of the Taxes Management Act 1970. However, it did so six days later.
When the appeal was heard in the High Court, the taxpayer took the preliminary point that Taxes Management Act 1970 section 56 subsec-or-para (5)sec. 56(5) was mandatory and that the Crown's appeal should be dismissed because the Revenue had failed to comply with its requirements. The Crown contended that the requirement was directory and that the appeal should be heard and determined by the court.
Held, allowing the appeal:
The preliminary issue
Taxes Management Act 1970 section 56 subsec-or-para (5)Section 56(5) of the Taxes Management Act 1970 was directory rather than mandatory because under Taxes Management Act 1970 section 56 subsec-or-para (4)sec. 56(4) of that Act the High Court had jurisdiction to hear the case as a result of the transmission of the case stated to the court on 8 May 1984.
Taxes Management Act 1970 section 56 subsec-or-para (5)Section 56(5) was intended to ensure that the respondent had adequate notice of the appeal before it was heard by the High Court. However it was not necessary that the notice should be given him at any particular time, except that there should not be too long a delay.
The preliminary point failed. Nothing had happened to deprive the court of its jurisdiction and the case should proceed.
The main issue
Finance Act 1974 schedule 1 subsec-or-para 6Paragraph 6(1) of Sch. 1 to the Finance Act 1974 provided the right of a person who already had a loan outstanding for the purchase of a property in which he lived to take out a loan to purchase a second property in which he intended to live and to have the tax relief on those two loans although they were running at the same time. This right was subject to the taxpayer actually occupying the second property as his main residence.
Finance Act 1974Paragraph 6(1) was not an entirely self-contained proposition and had to be read subject toFinance Act 1974para. 4(1)(a).
1. At a meeting of the Commissioners for the General Purposes of the Income Tax for the Division of Wirral held at Brunswick House, Price Street, Birkenhead, on 28 October 1983 Mr. Gordon Viner (hereinafter called "The Respondent") appealed against the refusal of H.M. Inspector of Taxes, Birkenhead 1 District, of a claim to relief in respect of interest paid under Finance Act 1972 schedule 9 subsec-or-para 75para. 75 and Sch. 9 Finance Act 1972 as amended byFinance Act 1972 section 19 schedule 1sec. 19 and Sch. 1 Finance Act 1974 for the years 1980/81 and 1981/82.
2. Briefly stated the issue before us was whether interest on a loan taken out for the purpose of purchasing a dwelling house intended for the future residence of a taxpayer, but never in fact so occupied, qualified for relief by virtue of Finance Act 1974 schedule 1 subsec-or-para 6para. 6(1) of Sch. 1 to the Finance Act 1974 or not.
3. The Respondent was represented at the hearing by Mr. Fearon of Messrs. Lerman Quaile & Co., Chartered Accountants, and the Inland Revenue by Mr. B. Hughes, H.M. Inspector of Taxes, Birkenhead 1 District.
4. In this case:
"the 1972 Act" means the Finance Act 1972;
"the 1974 Act" means the Finance Act 1974;
"the Chester house" means the Respondent's property No. 5 Nield Court, Chester:
"the Liverpool house" means the respondent's property No. 26 Queens Drive, Liverpool;
"the Loan" means a mortgage advance of £25,000 from the West Bromwich Building Society secured on the Liverpool house.
5. The facts were not in dispute and were laid before us in the form of an agreed statement which is annexed to and forms part of this case.
6. For the taxpayer it was contended that:
(2) interest paid on his mortgage loan relating to the Chester house qualified for relief against income tax under Finance Act 1974 part I schedule 9Pt.I of Sch. 9 to the 1972 Act;
(3) he had raised the Loan to defray the expense of purchasing the Liverpool house which he had intended to use as his only or main residence on the disposal of the Chester house;
(4) accordingly he was entitled to similar relief in respect of the interest paid on the Loan for the purchase of the Liverpool house for at least the first twelve months (but in this case, by concession of H.M. Inspector of Taxes, for thirteen months) as if no interest was payable on the loan for the Chester house (Finance Act 1972 schedule 1 subsec-or-para 6para. 6(1) of Sch. 1 to the 1974 Act).
(5) he was not disqualified from this relief by Finance Act 1974 schedule 1 subsec-or-para 4para. 4(1) of the said Schedule because that para. took effect subject to the provisions ofFinance Act 1974 schedule 1 subsec-or-para 6para. 6(1).
(6) relief against income tax should be allowed in the sums of £2,747 for 1980/81 and £2,073 for 1981/82.
7. For the Inland Revenue it was contended that:
(2) by virtue of Finance Act 1974 section 57 subsec-or-para (4)sec. 57(4) of the 1974 Act any reference in that Act to the 1972 Act should be construed as a reference to the 1972 Act as amended.
(3) The reference to Finance Act 1974 part I schedule 9Pt. I of Sch. 9 to the 1972 Act contained in Finance Act 1974 schedule 1 subsec-or-para 6para. 6(1) of Sch. 1 to the 1974 Act should be construed as referring to the 1972 Act as amended byFinance Act 1974 schedule 1 subsec-or-para 4para. 4(1) of Sch. 1 to the 1974 Act.
(4) The relief in respect of interest on home loans allowed by the 1972 Act could not apply unless the land in question was used as the taxpayer's only or main residence at the time the interest was paid or within a specified period thereafter.
(5) Finance Act 1974 schedule 1 subsec-or-para 6Paragraph 6(1)(b) applied the limit set down in para. 5 to the second loan with the proviso that the first loan was to be ignored in the computation, para. 5 was however only relevant where interest was eligible for relief under Finance Act 1974 schedule 1 subsec-or-para 4para. 4(1)(a). It followed thatFinance Act 1974 schedule 1 subsec-or-para 6para. 6(1)(b) was subject to the provisions of Finance Act 1974 schedule 1 subsec-or-para 4para. 4.
(6) The interest on the loan could not qualify for relief because the taxpayer had never used it as his only or main residence.
(7) The Respondent's appeal should be dismissed.
8. After considering the arguments and the relevant sections of the 1972 Act we concluded as follows:
(2) interest on the loan on the Respondent's Chester house qualified for relief within Finance Act 1972 part I schedule 9Pt. I of Sch. 9 of the 1972 Act both simpliciter and as amended by para. 4(1) of Sch. 1 to the 1974 Act.
(3) The Respondent had purchased the Liverpool house with a view to using it as his only or main...
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