Lewis (Inspector of Taxes) v Rook
| Jurisdiction | England & Wales |
| Court | Court of Appeal (Civil Division) |
| Judge | LORD JUSTICE BALCOMBE,LORD JUSTICE RALPH GIBSON,LORD JUSTICE STUART-SMITH |
| Judgment Date | 19 Feb 1992 |
| Judgment citation (vLex) | [1992] EWCA Civ J0219-9 |
| Docket Number | 92/0131 |
[1992] EWCA Civ J0219-9
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (REVENUE LIST)
(MR. JUSTICE MERVYN DAVIES)
Royal Courts of Justice
Lord Justice Balcombe
Lord Justice Ralph Gibson
Lord Justice Stuart-Smith
92/0131
MR. NICHOLAS WARREN (instructed by the Solicitor of Inland Revenue) appeared for the Appellant.
MR. DAVID MILNE Q.C. (instructed by Mrs. Susan Newlands, Tadworth, Surrey) appeared for the Respondent.
This is an appeal by the Crown from an order made by Mervyn Davies J. dated 5th December 1989 affirming a decision of the General Commissioners for Sevenoaks that the respondent taxpayer was entitled to relief from capital gains tax on the disposal by her of No. 1 Hop Cottages, Newlands, Crockham Hill, Kent on 30th August 1979. The judgment of Mervyn Davies J. is reported in [1990] S.T.C. 23.
The facts as found by the General Commissioners are set out in paragraph 5 of the Case Stated as follows:
"(1) On 6th June 1968 the taxpayer purchased the property known as Newlands, Crockham Hill, Kent for £34,501;
(2) included in the purchase were two cottages known as Nos 1 and 2 Hop Cottages (formerly an oasthouse) on the south boundary of the property;
(3) the total acreage of the property owned by the taxpayer on 30th August 1979 was 10.5 acres. The distance between the nearest points of No 1 Hop Cottages and Newlands is approximately 569 feet (175 metres);
(4) The main house Newlands has a large hall, an imposing landing, a very large dining room, a drawing room, a playroom, a further reception room making four in all, eight bedrooms, one used as a billiard room, a kitchen, a pantry, a scullery and a silver room
(5) No 1 Hop Cottages comprised a dining room, a lounge, a kitchen, two bedrooms and a bathroom. No 2 Hop Cottages next door had similar accommodation;
(6) Before the taxpayer purchased Newlands and Nos 1 and 2 Hop Cottages, No 1 Hop Cottages had been occupied by Mr and Mrs Foster. Mr Foster worked in the garden of the main house and Mrs Foster helped in the main house. When the taxpayer was on the point of completing the purchase of Newlands Mr Foster died. Mrs Foster remained at No 1 Hop Cottages after the purchase but never worked for the taxpayer;
(7) Mrs Foster paid the taxpayer a contribution of £1.12 1/2 per week which was the amount she had always paid ever since the taxpayer purchased the property. She paid this in respect of No 1 Hop Cottages and in respect of No 2 when she moved. She was 75 years of age at the time of the appeal hearing;
(8) in early February 1973 Mrs Foster vacated No 1 Hop Cottages and moved into No 2 Hop Cottages. Since purchasing Newlands, the taxpayer had renovated No 2 Hop Cottages (which at the date of purchase had no bathroom and outside sanitation). In February 1974 the taxpayer's gardener moved into No 1 Hop Cottages. In February 1978 the gardener vacated No 1 Hop Cottages;
(9) by contract dated 30th August 1979 the taxpayer sold No 1 Hop Cottages for £33,000. The sale proceeds helped to finance the conversion into residential accommodation of the Coach House which was immediately adjacent to the main house and which had previously been used for storing hay in the loft with two garages below. After vacating No 1 Hop Cottages the taxpayer's gardener moved into the Coach House. The taxpayer was elderly, lived alone in the main house and needed someone close at hand; hence the reason for the gardener's move;
(10) the greenhouses, tool shed and compost heaps used in connection with the main house garden were situated between the main house and No 1 Hop Cottages and convenient to No 1 Hop Cottages. The greenhouses and the potting shed were located approximately half way between No 1 Hop Cottages and the main house;
(11) during the taxpayer's ownership of it, No 1 Hop Cottages had never been screened from the main house so that the taxpayer could see the lights in the cottage and could flash a light if she needed help. She also had a ship's bell which she could ring and which could be heard from the cottage which she would use if she needed help. This had happened more than once. It was very convenient to come up through the garden to the house and it was not convenient by the road."
The relevant statutory provisions are to be found in sections 101 and 102 of the Capital Gains Tax Act 1979. Section 101, so far as relevant, is in the following terms:
"(1) This section applies to a gain accruing to an individual so far as attributable to the disposal of, or of an interest in—
(a) a dwelling-house or part of a dwelling-house which is, or has at any time in his period of ownership been, his only or main residence, or
(b) land which he has for his own occupation and enjoyment with that residence as its garden or grounds up to the permitted area.
(2) In this section 'the permitted area' means, subject to subsections (3) and (4) below, an area (inclusive of the site of the dwelling-house) of one acre.
(3) In any particular case the permitted area shall be such area, larger than one acre, as the Commissioners concerned may determine if satisfied that, regard being had to the size and character of the dwelling-house, that larger area is required for the reasonable enjoyment of it (or of the part in question) as a residence.…"
Section 102, so far as relevant, provided at the material
date:
"(1) No part of a gain to which section 101 above applies shall be a chargeable gain if the dwelling-house or part of a dwelling-house has been the individual's only or main residence throughout the period of ownership, or throughout the period of ownership except for all or any part of the last twelve months of that period.
(2) Where subsection (1) above does not apply, a fraction of the gain shall not be a chargeable gain, and that fraction shall be—…"
The rest of section 102 is concerned with the calculation of the amount of the relief and that is not in issue on the present appeal.
The issue is whether No. 1 Hop Cottages formed part of a dwelling-house which was the taxpayer's only or main residence.
The General Commissioners' findings are contained in paragraph 9 of the Case Stated as follows:
"We the Commissioners who heard the appeal, having considered the parties' contentions and the evidence before us, found that No 1 Hop Cottages formed part of the entity which comprised the dwellinghouse of Newlands. We considered that during Mrs Foster's residence at No 1 Hop Cottages the exemption should not apply and we found that accordingly an apportionment should be made and a figure of £2,855.10 of tax paid…"
The judge upheld the Commissioners' findings, although on grounds which formed no part of the Commissioners' decision. His conclusions are contained in the following passage from his judgment ( [1990] S.T.C. at p. 31):
"I now look at the facts of this case with a view to deciding whether or not No. 1 Hop Cottages is within the entity constituting the taxpayer's residence. There are the following considerations:
(i) The cottage is about 190 yards from Newlands House.
(ii) The cottage is rated separately from Newlands House.
(iii) At a relevant time it was occupied by a gardener employed by the taxpayer.
(iv) His work took him up the path from the cottage to the lawn and vegetable garden, the boundaries of which were less than 100 yards from the cottage: see in this connection paragraph (10) of the Case Stated as quoted above.
(v) The taxpayer, elderly and living alone, placed reliance on a presence in No. 1 Hop Cottages: see the Case Stated paragraph (11) as quoted above.
Taking these considerations into account it seems to me that the entity constituting the taxpayer's residence included No. 1 Hop Cottages because the taxpayer's way of living embraced use not only of Newlands House itself with its gardens but also of the cottage of the gardener who attended to the gardens. That the cottage is about 190 yards distant from the house is, to my mind, not of paramount importance in the context of the Newlands set-up; that is, of the way of life led by the taxpayer. It is a matter of degree.
In these circumstances I do not feel able to say that the Commissioners came to an unsound determination."
The Crown maintains that no reasonable tribunal of fact, properly directing itself, could have reached the conclusion that No. 1 Hop Cottages ("the Cottage") and Newlands together formed one dwelling-house which was the taxpayer's residence.
It is to be noted that section 101 (1) (a) refers to:
"…a dwelling-house which is…his…residence…"
The Crown would wish to argue from the reference to a dwelling-house (in the singular) that the buildings which form a taxpayer's dwelling-house under section 101 (1) (a) cannot include buildings apart from the taxpayer's main house which themselves form a separate self-contained dwelling-house. Mr. Warren, counsel for the Crown, accepted that this argument was not open to him before us because of the decision of this court in Batey v. Wakefield [1981] 55 T.C. 550, although he reserved the right to argue the point in a higher court.
Since Batey v. Wakefield is the first of three reported cases in which a question arose similar to that in the present case, it will be convenient to consider those cases before turning to the arguments in the present case.
In Batey v. Wakefield the main house ("Paddocks") was a four bedroomed house set in 1.1 acres of land. On a part of that land the taxpayer built a chalet bungalow ("Paddocks Lodge") for occupation by a...
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