Koenigsberger v Mellor (Inspector of Taxes)

JurisdictionEngland & Wales
CourtChancery Division
Judgment Date11 May 1993
Date11 May 1993

Chancery Division.

Lindsay J.

Koenigsberger
and
Mellor (HM Inspector of Taxes)

The taxpayer appeared in person.

Launcelot Henderson (instructed by the Solicitor of Inland Revenue) for the Crown.

The following cases were referred to in the judgment:

Fry (Surveyor of Taxes) v Shiels' Trustees TAX(1914) 6 TC 583

M'Dougall v Smith (Surveyor of Taxes) TAX(1918) 7 TC 134

Northend (HMIT) v White & Leonard & Corbin Greener and OrsTAX(1975) 50 TC 121

Peay (HMIT) v Newton TAX(1970) 46 TC 653

Income tax - Retirement annuity relief - Income received from Lloyd's syndicates by an external Name - Whether "income derived by him from the carrying on or exercise" of trade - Income and Corporation Taxes Act 1988 section 623 subsec-or-para (2)Income and Corporation Taxes Act 1988, sec. 623(2)(c) (replacing Finance Act 1970 section 226 subsec-or-para (9)sec. 226(9)(c) of the 1970 Act).

This was an appeal by the taxpayer against the decision of a special commissioner that the taxpayer was not entitled to retirement annuity relief provided by the Income and Corporation Taxes Act 1988 section 619 subsec-or-para (1)Income and Corporation Taxes Act 1988, sec. 619(1) in respect of a premium paid out of income received by a non-working Name from membership of syndicates at Lloyd's.

The taxpayer was an external Name member of Lloyd's. Members of syndicates might be either working Names or external Names. A working Name was a person who, as well as underwriting the risks undertaken by his syndicate, was also actively engaged in the business of Lloyd's. The taxpayer was not a working Name.

The relationship between a Name and his agent was governed by an agency agreement which was in a form and the terms of which were laid down by the corporation at Lloyd's in a byelaw. The agreement between the taxpayer and his agent included a term that the agent should have the sole control and management of the underwriting business and the Name should not in any way interfere with the exercise of such control or management. The Names had no say in what risks should be accepted by the syndicate. The head of each syndicate alone made all such decisions.

Since becoming a Name the taxpayer was accustomed to spend three to four hours per week on Lloyd's affairs in order to decide how to spread the underwriting between types of insurance and which syndicates to leave and which to join. He discussed his affairs regularly with his agent.

The taxpayer paid a premium of £1,000 under a retirement annuity contract out of income which he had received from Lloyd's syndicates. The premium was referable to the year 1987-88.

The question for decision was whether the taxpayer was entitled to retirement annuity relief under the Income and Corporation Taxes Act 1988, Income and Corporation Taxes Act 1988 section 619 subsec-or-para (1)sec. 619(1) in respect of the premium paid out of income from Lloyd's syndicates which was taxable underIncome and Corporation Taxes Act 1988 schedule DSch. D.

The taxpayer's claim for retirement annuity relief against the income which he received in 1987-88 from a number of syndicates was refused. Although the premium qualified for relief under Income and Corporation Taxes Act 1988 section 619 subsec-or-para (1)sec. 619(1) in other respects, the Revenue maintained that the Lloyd's income did not constitute "relevant earnings" within the definition of that term in Income and Corporation Taxes Act 1988 section 623 subsec-or-para (2)sec. 623(2)(c). It was not "income derived by him from the carrying on or exercise by him of his trade" which assumed personal exertion on the taxpayer's part.

A special commissioner decided against the taxpayer, likening his activities to those of an investor rather than carrying on a trade.

On appeal to the High Court the taxpayer contended that personal exertion on his part was not required to satisfy the definition of relevant earnings. That was evident from the reference inIncome and Corporation Taxes Act 1988 section 623 subsec-or-para (2)sec. 623(2)(c) to partnerships and "a partner acting therein". If personal exertion was required generally, those words would be redundant. Alternatively, if personal exertion and exercise of skill were required, the taxpayer said that the time and effort he spent on his Lloyd's affairs should be regarded as sufficient to bring him within the definition of relevant earnings.

Held, dismissing the taxpayer's appeal:

The Income and Corporation Taxes Act 1988 schedule DSch. D. income which was to be the subject of relief was restricted by Income and Corporation Taxes Act 1988 section 623 subsec-or-para (2)sec. 623(2)(c) to income from carrying on a trade requiring personal exertion and work. The taxpayer's exertions in relation to his Lloyd's affairs were preparatory to trading, not carrying on a trade. Moreover, there were intervening events between the taxpayer's exertions and the trade. His agent and the heads of syndicates had to take all the steps involved in carrying on the trade. The taxpayer was bound by contract from taking any of the such steps. So, even if his exertions were sufficient to satisfy Income and Corporation Taxes Act 1988 section 623 subsec-or-para (2)sec. 623(2)(c), because of those intervening events, the trade was not carried on "immediately" or "by him" within the definition of "relevant earnings". (M'Dougall v Smith (Surveyor of Taxes) TAX(1918) 7 TC 134 and Northend (HMIT) v White & Leonard & Corbin Greener and Ors TAX(1975) 50 TC 121 followed.)

CASE STATED

On 23 October 1991, a special commissioner (His Honour JudgeMedd QC) heard the appeal of Mr C W Koenigsberger against the refusal by the inspector of taxes of his claim for retirement annuity relief under the provisions of the Income and Corporation Taxes Act 1988 section 619Income and Corporation Taxes Act 1988, sec. 619 in respect of the year of assessment 1987-88.

The question of law for the opinion of the court was whether on the facts found by the commissioner he erred in law in holding that the taxpayer was not entitled to retirement annuity relief in respect of the income received in that year from syndicates at Lloyd's to which he belonged.

DECISION

The taxpayer, Mr C W Koenigsberger, is a barrister who has practised in London since 1958. He appeals against the refusal by the inspector of taxes, notified to him in a letter dated 13 May 1991, of his claim for retirement annuity relief under the provisions of Finance Act 1970 section 226sec. 226 of the Income and Corporation Taxes Act 1970, for the year of assessment 1987-88. Mr Koenigsberger claimed the relief against the income received by him in that year from a number of syndicates at Lloyd's to which he belonged as a Name.

The provision of the Income and Corporation Taxes Act 1970, under which relief may be claimed is as follows:

  1. 226(1) Where, in any year of assessment, an individual-

    1. (a) is (or would but for an insufficiency of profits or gains be) chargeable to income tax in respect of relevant earnings from any trade, profession, vocation, office or employment carried on or held by him, and

    2. (b) pays a premium or other consideration under an annuity contract for the time being approved by the Board as having for its main object the provision for the individual of a life annuity in old age … (hereafter … referred to as "a qualifying premium"),

then relief from income tax may be given in respect of the qualifying premium …

There is no dispute between the parties that Mr Koenigsberger paid a qualifying premium of £1,000 which is referable to the year of assessment 1987-88 so that the only question that remains in dispute is whether or not for that year he was chargeable to income tax in respect of "relevant earnings" from any trade. It is his case that his relevant earnings for that year was the income that he received from the various syndicates at Lloyd's on which he was a Name. Mr Durrans, who appeared on behalf of the Revenue, argued that the income Mr Koenigsberger received from that source was not "relevant earnings" within the meaning of those words where they appear in Finance Act 1970 section 226 subsec-or-para (1)sec. 226(1).

Finance Act 1970 section 226 subsec-or-para (9)Section 226(9), so far as is relevant, defines the words "relevant earnings" for the purposes of this section thus:

  1. 226(9) … "relevant earnings", in relation to any individual, means for the purposes of this Chapter any income of his chargeable to tax for the year of assessment in question, being either-

    1. (c) income which is chargeable under … Schedule D and is immediately derived by him from the carrying on or exercise by him of his trade, profession or vocation either as an individual or, in the case of a partnership, as a partner personally acting therein …

It is accepted by Mr Koenigsberger...

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2 cases
  • Koenigsberger v Mellor (Inspector of Taxes)
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 17 March 1995
    ...Act 1970 section 226 subsec-or-para (9)s. 226(9)(c) of the 1970 Act). This was an appeal by the taxpayer against a decision of Lindsay J ([1993] BTC 229) that an external name at Lloyd's was not entitled to retirement annuity relief on premiums paid out of Lloyd's income. As an external mem......
  • Koenigsberger v Carl Mellor (HM Inspecotor of Taxes)
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 17 March 1995
    ...was income "immediately derived by him from the carrying on or exercise by him of his trade as an individual." 6 As reported at [1993] STC 408 the Special Commissioner found at page 410j that - "The members of Lloyds, for the purpose of insuring members of the public against ......

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