Kirkby v Hughes (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 22 December 1992 |
| Date | 22 December 1992 |
| Court | Chancery Division |
Chancery Division.
Ferris J.
Alun James (instructed by Malkins, agents for Percy Hughes & Roberts, Wallasey) for the taxpayer.
Timothy Brennan (instructed by the Solicitor of Inland Revenue) for the Crown.
The following case was referred to in the judgment:
Lionel Simmons Properties Ltd (in liq) & Ors v IR CommrsTAX(1980) 53 TC 461
This was an appeal by the taxpayer against a decision of the general commissioners for Wirrall that the profit realised on the sale of a property which had been purchased by the taxpayer and sold after he had renovated it was to be taxed as income of the taxpayer's trade as a building contractor.
The taxpayer carried on business as a builder. Part of his business was property renovation for customers but he had also from time to time acquired properties on his own account to renovate and sell.
The general commissioners found that, in 1978, while the taxpayer was living with his parents, he purchased a four-bedroomed property, 34 Montpelier Crescent. He carried out improvements and sold the property in August 1981 for a profit. Although he never permanently resided in the property because he continued to live with his parents, he had resided there at some time.
In April 1981 the taxpayer had purchased a vacant site on which he built a four-bedroomed house with a double garage. That was sold in 1984, again at a profit. Part of the proceeds of sale was lent to a company in which the taxpayer had a business interest and part was used to purchase an old barn which he converted into a four-bedroomed house. The commissioners found that the taxpayer never used the second property as his principal private residence and never resided permanently in the old barn. The commissioners observed in their conclusions that all three properties were substantially larger than they would have expected the taxpayer, who was a bachelor, to need for himself. The commissioners particularly noted that the vacant site, although allegedly for the taxpayer's own use, was purchased at a time when he had no predetermined intention of selling 34 Montpelier Crescent.
The appeal was dismissed and the taxpayer appealed to the High Court in respect of 34 Montpelier Crescent only. The grounds of appeal were, first, that the commissioners had addressed the wrong question: they should have considered whether 34 Montpelier Crescent was purchased as a permanent asset outside the scope of business rather than whether it was occupied as a private residence for capital gains tax purposes. Moreover, the extent of his occupation and the size of the properties in relation to his personal circumstances were not relevant to the question of whether he was intending to trade.
The second ground of appeal was that the commissioners' findings of fact contradicted their conclusion that 34 Montpelier Crescent was purchased as a trading asset. Their emphasis on the fact that the vacant site was bought when the taxpayer had no intention of selling 34 Montpelier Crescent showed that he could not have had the intention to sell, which was necessary to a trading transaction, at the earlier date when he acquired it.
Held, dismissing the taxpayer's appeal:
1. While the question at issue was whether the taxpayer was trading, it would have been an inevitable consequence of a finding that 34 Montpelier Crescent was not acquired for trade that the transaction was within the capital gains tax provisions and the commissioners were entitled to consider it. In view of the explanation put forward by the taxpayer, the commissioners were also entitled to take into account the facts that he was a builder, that the property was of a kind he was accustomed to acquire as a trading asset and the size of the property.
2. The commissioners' finding that the taxpayer had purchased the vacant site without any predetermined intention of selling 34 Montpelier Crescent should not be taken in isolation and construed in a highly technical way. The taxpayer had relied on the acquisition of 34 Montpelier Crescent as his principal private residence but that explanation was not accepted by the commissioners. The property was of a type he was accustomed to buy, and in due course to sell, in his business. When another similar property was acquired it was inevitable that an inference might be drawn that the intention was the same unless the taxpayer had an alternative explanation which was accepted.
1. At a meeting of the commissioners for the general purposes of the income tax for the division of Wirral on the 3 March 1989 Stephen Sean Kirkby ("the taxpayer") trading as Warren Construction, of 11 Claremont Road, Wallasey appealed against a further assessment to income tax made on him under schedule DCase I of Sch. D for the fiscal years 1982-83 and 1984-85 in the sums of £29,416 and £16,414 respectively in respect of profits arising from his trade as a building contractor.
2. The issue before the commissioners was whether the gains arising on the sale of the property at 34 Montpelier Crescent, Wallasey are properly chargeable to tax under Income and Corporation Taxes Act 1988 section 18sec. 18 of the Income and Corporation Taxes Act 1988 ( schedule DSch. D) as part of the profits of the trade of builder carried on by the taxpayer or whether they are chargeable under Capital Gains Tax Act 1979 section 1sec. 1 of the Capital Gains Tax Act 1979 as gains accruing to the taxpayer on the disposal of assets and not liable to tax because of 34 Montpelier Crescent being the principal private residence of the taxpayer.
[Paragraphs 3 and 4 listed the appearances, the witnesses and the documents proved or admitted before the commissioners.]
5. From the oral and written evidence the commissioners found the following facts:
(a) the taxpayer has been trading as Warren Construction Co from 1973-74 to date, as a building contractor. The activities of this building contractor's business had consisted in part of doing renovation work for private individuals, or, in the case of one office complex in Liverpool, for a corporate customer. However, as part of the building contractor's business he has also purchased properties which he has then renovated and sold on his own account; this was the case, for example, with 11 Harringay Avenue, Liverpool, with 272 Anfield Road, Liverpool, and also with the flats at 53 Rice Lane. The taxpayer bought and sold 67 Rice Lane, Wallasey without renovation. In addition to carrying on this building contractor's business in his personal capacity, the taxpayer was at the time of the hearing before us a director of three companies: Alinbrook Ltd, a property investment company which owned let flats all of whose shares were owned by, or by nominees for, the taxpayer; Lorrimar, a property development company formed to carry out one particular development; and Treevale Ltd, which the taxpayer formed in November 1988 in conjunction with his brother to open residential care homes. The properties purchased and sold by the taxpayer in his personal capacity for various purposes since 1979 (although not the purposes for which he purchased and sold them) are correctly identified in the taxpayer's schedule of properties.
(b) The taxpayer was at all material times a bachelor. He was at one time engaged to be married but the engagement was broken off after approximately three months residence at 37 Rockland Road.
(c) The property at 34 Montpelier Crescent
(d) The taxpayer had been living at his parents' home at 23 Mockbeggar Drive, Wallasey prior to his purchase of the property at 34 Montpelier Crescent, Wallasey on 20 August 1978 for £5,000. This property when purchased consisted of four bedrooms and three downstairs rooms consisting of a kitchen/dining room, lounge and reception room. At the...
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