Jeffery Sugarwhite v Raymond Stuart Budd and Another
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE NOURSE,LORD JUSTICE MANN |
| Judgment Date | 03 May 1988 |
| Judgment citation (vLex) | [1988] EWCA Civ J0503-2 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 88/0371 |
| Date | 03 May 1988 |
[1988] EWCA Civ J0503-2
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR. JUSTICE VINELOTT)
Royal Courts of Justice
The Master of the Rolls
(Lord Donaldson)
Lord Justice Nourse
and
Lord Justice Mann
88/0371
CH 1986B 3242
MR. C.W. KOENIGSBERGER (instructed by Messrs. R.G. Freeman & Co., Solicitors, London NW11) appeared on behalf of the Appellant.
MR. A. MOSES (instructed by The Solicitor of Inland Revenue, London WC2R 1LB) appeared on behalf of the Respondent.
Lord Justice Nourse will give the first judgment on this appeal.
This appeal raises a question under section 488 of the Income and Corporation Taxes Act 1970 which, by subsection (1), is expressed to be enacted in order to prevent the avoidance of tax by persons concerned with land or the development of land.
The appellant taxpayer, Mr. Jeffery Sugarwhite, a chartered accountant in private practice, appealed to a single Special Commissioner, Mr. R.H. Widdows, against assessments under section 488 for 1972/73 and 1973/74 arising out of transactions relating to two properties, 23 Hoop Lane, London NW11 and 3 Fountayne Road, London N16. The assessment for 1972/73 in respect of 23 Hoop Lane was discharged, but that for 1973/74 in respect of 3 Fountayne Road was upheld, albeit in a reduced amount of £8,500. Both the Inspector of Taxes and the taxpayer asked the Special Commissioner to state a case for the opinion of the High Court, but the appeal of the Inspector of Taxes against the assessment for 1972/73 was not pursued. The taxpayer's appeal against that for 1973/74 was heard and dismissed by Mr. Justice Vinelott, and he has now brought a further appeal to this court.
Although the transaction relating to 23 Hoop Lane is no longer directly in point, it is material to that relating to 3 Fountayne Road and must be considered accordingly. The taxpayer agreed to buy this property on 16th September 1971 for £16,000. The purchase was completed at some time in October 1971 with the help of a mortgage from a building society and a loan from the vendors secured by a second mortgage. On 9th January 1972 the taxpayer signed an agreement whereby he agreed to sell the property on or before 14th August 1972 to a company called Madeira Investment Properties Limited ("Madeira"), with an address in the Bahamas, for £l6,750. Madeira was to be entitled to sub-sell or to nominate another purchaser in its place, and the taxpayer was not entitled to raise any objection to that. In the Autumn of 1972, probably in October, the taxpayer executed a transfer of the property in favour of a third party in consideration of the payment of £26,500, of which £16,750 was declared payable to himself, £500 to Madeira, £8,650 to Coleridge Securities Limited ("Coleridge") and £600 to Ground Securities Limited ("Ground"). Coleridge and Ground were also companies with addresses in the Bahamas.
Mr. Sugarwhite has throughout maintained that he bought 23 Hoop Lane to hold on a long-term basis as an investment, but that he changed his mind and decided to sell it for two reasons, one domestic and the other because he had difficulties with the tenant of the top floor. He therefore decided to sell the property. At this stage I take up the narrative from page 2 of the Decision:
"After it had been on the market for two months without attracting a buyer he mentioned it to Mr. Kanter, a solicitor whom he knew through business contacts, and Mr. Kanter said that he could find a buyer but completion would have to be delayed for some months, to which Mr. Sugarwhite offered no objection. He says that when, at the time of completion, he was asked to execute a transfer in a form which included three Bahamian companies he was not surprised because he knew that sub-sales of that sort were common in the property market at that time. He had no knowledge of any of the sub-purchasers. He thought he was selling to Madeira, the client which Mr. Kanter had provided as the purchaser from him. He was glad to be rid of the property without showing a loss in all the circumstances."
The Special Commissioner found that the taxpayer's evidence had failed to satisfy him that he bought 23 Hoop Lane as an investment. On the other hand, he found that the taxpayer was not a party to an arrangement whereby the real gain on disposal of the property was channelled to the three Bahamian companies. He found in effect that there was no connection between the purchase and the re-sale. Accordingly he held that no assessment could be made on the taxpayer under section 488 by reference to the gains made by the three companies. The Inspector of Taxes did not seek to attack, under that section, the gain of £750 made by the taxpayer, although, as Mr. Justice Vinelott observed, it must be taxable under some other head. That head is accepted by Mr. Koenigsberger, who appears for the taxpayer, to be Case 1 of Schedule D.
I turn now to 3 Fountayne Road. The facts here were as follows. The taxpayer contracted to buy this property at some time in April 1973 for £20,000. The purchase was completed on 7th May 1973. On 18th May 1973 he contracted to sell it to Madeira for £25,000 with a similar provision for a sub-sale or the nomination of another purchaser in Madeira's place. This sale was completed on 24th August 1973, when in consideration of £33,500 the taxpayer transferred the property to an English company called Tangkern Limited. That company, as far as we know, had no connection with any of the other parties concerned. Of that £33,500 Tangkern was directed to pay £25,000 to the taxpayer, £1,000 to Madeira, £6,500 to Coleridge and £1,000 to Ground. In spite of evidence from the taxpayer that he had bought this property as a nominee for a private property dealing company belonging to himself and his family, the Special Commissioner found that the gain of £5,000 which was made directly on the re-sale was made by the taxpayer and not by the company. That finding is not directly in point, because it is accepted on all sides that the assessment under section 488 relates to the sums of £1,000, £6,500 and £1,000 paid to the three Bahamian companies.
The taxpayer also said that he had bought the property in order to convert it into three flats. I take up his evidence as recorded in the Special Commissioner's Decision at page 4:
"….. but after he had signed the contract he found that the banks were not really interested in financing the proposed development and the builders' estimates for the redevelopment work turned out to be considerably higher than the provisional figures which had been mentioned to him before he signed the contract. He therefore decided to sell the property as it stood; and at that point Mr. Kanter came on the scene again, agreeing to provide or to arrange the necessary finance to enable him to complete the purchase and making all the arrangements for the resale of the property. He (Mr. Sugarwhite) knew nothing of any intended sub-sales until he came to sign the transfer and even then it did not strike him that the sub-purchasers were the same three Bahamian companies as had been involved in the Hoop Lane transaction. So far as he was concerned it was simply a sale of the property to Madeira for £25,000, all arrangements being made by Mr. Kanter."
The Special Commissioner said that he could accept the taxpayer's assertion that he intended to develop and exploit 3 Fountayne Road through the family company. I take up his findings at the top of page 8:
"But, as in the case of 23 Hoop Lane, although for different reasons, the original plan was abandoned and he looked for a way of disposing of the property even before the purchase was completed. Mr. Kanter offered to help him to buy the property and resell it.
"Up to that point I find Mr. Sugarwhite's evidence credible but not, I regret to say, any further. His evidence as to the later events was referred to...
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