Jerome v Kelly (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Jonathan Parker,Lady Justice Hale,Lord Justice Schiemann |
| Judgment Date | 20 December 2002 |
| Neutral Citation | [2002] EWCA Civ 1879 |
| Docket Number | Case No: A3 2002 1012 |
| Court | Court of Appeal (Civil Division) |
| Date | 20 December 2002 |
[2002] EWCA Civ 1879
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT
CHANCERY DIVISION (Mr Justice Park)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Justice Schiemann
Lady Justice Hale and
Lord Justice Jonathan Parker
Case No: A3 2002 1012
Mr Launcelot Henderson QC and Mr David Rees (instructed by Solicitor of Inland Revenue) for the Respondent/Appellant in the Court of Appeal
Mr Robert Venables QC and Mrs Amanda Hardy (instructed by Messrs Stokes) for the Appellant/Respondent in the Court of Appeal
INTRODUCTION
This is an appeal by the Revenue from an order made by Park J on 15 April 2002 allowing an appeal by the taxpayer, Mr Michael Jerome, from a decision of the Special Commissioner (Dr Nuala Brice) released on 19 July 200Permission for a second appeal was granted by Chadwick LJ on 29 May 2002.
The judge's judgment ("the Judgment") and the Special Commissioner's decision ("the Decision") are reported at [2002] STC 609. For the purposes of this judgment I shall take them as read, referring to them only so far as is necessary to render this judgment intelligible.
The appeal raises a short but important question as to the true construction of s.27(1) of the Capital Gains Tax Act 1979 ("the 1979 Act"), a provision which is now to be found in s.28(1) of the Taxation of Chargeable Gains Act 1992 ("the 1992 Act"). S.27 of the 1979 Act is directed at situations in which an asset is disposed of under a pre-existing contract. It provides as follows (so far as material):
"27. Time of disposal and acquisition where asset disposed of under contract
(1) Where an asset is disposed of and acquired under a contract the time at which the disposal and acquisition is made is the time the contract is made (and not, if different, the time at which the asset is conveyed or transferred).
This subsection has effect subject to …. subsection (2) below.
(2) If the contract is conditional …. the time at which the disposal and acquisition is made is the time at which the condition is satisfied."
The question which arises is succinctly expressed in the Revenue's skeleton argument as follows:
"If A enters into an unconditional contract to sell land to B, and in the interval between contract and completion transfers his residual beneficial interest in the land, subject to and with the benefit of the contract, to C (e.g. by means of a declaration of trust), who is treated as disposing of the land for CGT purposes when the contract is completed in accordance with its original terms by a conveyance from A to B? Is it A, as the Revenue contends and the Special Commissioner held? Or is it C, as [the taxpayer] contends and Park J has now held?"
The question arises in this way. On 16 April 1987 the taxpayer, his wife Mary and his brother Oliver contracted to sell some 13.2 acres of land at Bridge Farm, Holt Lane, Hook, in Hampshire, to a developer. At that stage the land did not have planning permission for development and the contract contained a power for the purchaser to rescind should a satisfactory planning permission not be forthcoming. It is common ground, however, that the contract was not a conditional contract within the meaning of s.27(2). Completion, which was deferred, was to take place in three tranches. In the event, a satisfactory planning permission was forthcoming, and the contract was completed as to the first tranche in 1990, as to the second tranche in 1991 and as to the third tranche in 1992. The total purchase price exceeded £5M.
By an assessment dated 14 February 1992 the Revenue assessed the taxpayer to capital gains tax for the tax year 1987/8 in the sum of £195,148.50 in respect of chargeable gains accruing to himself and Mrs Jerome on the sale (s.45 of the 1979 Act, since repealed, provided that capital gains tax on chargeable gains accruing to a married woman should be assessed and charged on her husband). The taxpayer appealed against the assessment, on the ground that (as is common ground) between contract and completion he and Mrs Jerome had assigned part of their beneficial interests in the land to the trustee of overseas settlements.
Thus, leaving aside for the moment a separate and subsidiary point which arises as to a part of the land comprising some 0.9 acres ("the additional land"), the issue in the case is as to the effect (if any) of those intermediate dealings with the beneficial interests in the land of the taxpayer and of Mrs Jerome on the taxpayer's liability to capital gains tax on the sale. That in turn depends on the true construction of s.27(1).
The Special Commissioner held that it followed from the fact that, applying s.27(1), the time the disposal was made was the date of the contract (16 April 1987), that the parties to the disposal and the subject-matter of the disposal had also to be ascertained as at that date, with the consequence that subsequent dealings with the beneficial interests of the original vendors (or some of them) in the land did not affect their liability for capital gains tax on the sale. She accordingly upheld the assessment.
On the taxpayer's appeal, the judge held that on its true construction s.27(1) related only to the time of the disposal and not to the parties to it or to the subject-matter of it; and that consequently to the extent that the beneficial interest in the land was, as at the date of completion, vested in the trustee of the overseas settlements the disposal of the land for capital gains tax purposes was made by the trustee.
The Revenue now appeals to this court.
The separate point in relation to the additional land arises from the fact that whilst as at 16 April 1987 the remainder of the land ("the original land") was vested in the taxpayer and his brother on trust for sale for themselves and Mrs Jerome as tenants in common in undivided shares, the legal and beneficial ownership of the additional land was vested in the taxpayer's mother, Mrs Philbrow. By a Deed of Gift dated 1 May 1987 Mrs Philbrow gave it to the taxpayer and Mrs Jerome upon trust for themselves as beneficial joint tenants. The Revenue is content to treat the taxpayer's liability to capital gains tax on the sale of the additional land as having arisen on the date of the Deed of Gift. The taxpayer does not contest that treatment (in practice, it makes no difference to the taxpayer's liability since both dates fell within the same tax year), but he relies on it as providing support for his contentions as to the true construction of s.27(1).
THE FACTS
The facts are set out with great clarity in paragraphs 11 to 34 of the Decision. For present purposes I summarise the salient facts as follows.
As at 16 April 1987 the original land, which had previously been given to the taxpayer and his brother Oliver by their mother Mrs Philbrow, was vested in them as trustees for sale, on trust for themselves and Mrs Jerome as tenants in common in undivided shares (the taxpayer's brother being entitled to a one half undivided share, and the taxpayer and Mrs Jerome to a one quarter undivided share each); the additional land remained in the legal and beneficial ownership of Mrs Philbrow. On that date the taxpayer, Mrs Jerome and his brother contracted with a developer, Conder Developments Ltd ("Conder"), to sell three plots of land, comprising the original land and the additional land (which formed part of Plot 1), to Conder. The total purchase price was just under £4M, but the contract provided for an uplift if completion took place after 31 December 1988 (as in the event it did). Completion was to take place in May 1994 or earlier if required by Conder.
On 1 May 1987 Mrs Philbrow executed the Deed of Gift of the additional land referred to earlier.
On 11 November 1987 Conder assigned the benefit of the contract to Crest Estates Ltd ("Crest"). Nothing turns on this assignment for present purposes.
In December 1988 the taxpayer and Mrs Jerome jointly established two £100 Bermudan settlements, of which a Bermudan trust company, Codan Trust Co Ltd ("Codan"), was trustee. One of the settlements created successive beneficial interests; the other was an accumulation and maintenance settlement.
In December 1989 the taxpayer and Mrs Jerome, by six separate assignments, assigned to the Bermudan settlements one half of their beneficial interests in the original land and the additional land (together with one half of their beneficial interests in further land at Bridge Farm with which this appeal is not concerned). Following these assignments, the beneficial interests in the original land were as follows:
the taxpayer's brother one half
the taxpayer one eighth
Mrs Jerome one eighth
Codan one quarter.
And the beneficial interests in the additional land were as follows:
the taxpayer one quarter
Mrs Jerome one quarter
Codan one half.
In February 1990 outline planning permission was granted in respect of the original land and the additional land.
In November 1990 the sale of Plot 1 was completed, at a price of £2,743,386. In December 1991 the sale of Plot 2 was completed, at a price of £509,282. In December 1992 the sale of Plot 3 was completed, at a price of £1,780,375. The total purchase price was £5,033,043.
On 14 February 1992 the Revenue raised the assessment which is in issue in this case.
S.46(1) OF THE 1979 ACT
At this point it is convenient to refer to s.46(1) of the 1979 Act...
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