Plumbly v Spencer (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 05 February 1997 |
| Date | 05 February 1997 |
| Court | Chancery Division |
Chancery Division.
Lightman J.
Patrick Soares (instructed by Markby Hewitt) for the taxpayers.
Michael Furness (instructed by the Soilicitor of Inland Revenue).
Capital gains tax - Retirement relief - Disposal of assets of business - Sale of land by taxpayer having reached the age of 60 - Land leased by taxpayer to farming company until disposal - Whether retirement relief available - Finance Act 1985 section 69 subsec-or-para (2)Finance Act 1985, s. 69(2)(b) (Taxation of Chargeable Gains Act 1992 section 163 subsec-or-para (2)Taxation of Chargeable Gains Act 1992, s. 163(2)(b)).
This was an appeal by the personal representatives of H against a decision of a special commissioner that retirement relief under theFinance Act 1985 section 69 subsec-or-para (2)Finance Act 1985, s. 69(2)(b) was available only where assets disposed of were in use for the purposes of a business of the person claiming relief. Where the assets disposed of belonged to a company, the disposal did not qualify.
On 29 January 1988, having attained the age of 60 years, H disposed of the freehold of 163 acres of farm land which he owned personally. At the time of the disposal the land was used for the purposes of the business of H's family company ("the company") of which he was a full time working director and the business ceased when the land was sold. The company had paid rent to H.
The Revenue contended that, while on a literal interpretation the conditions required by Finance Act 1985 section 69 subsec-or-para (2)s. 69(2)(b) might be satisfied, the result of that interpretation would be inconsistent with the scheme of the legislation. Contrasted with Finance Act 1985 section 69 subsec-or-para (2)s. 69(2)(a), which provided for the disposal of the business as a whole rather than assets of a business, only assets of the claimant's business were intended to be included inFinance Act 1985 section 69 subsec-or-para (2)s. 69(2)(b).
Held, dismissing the taxpayer's appeal
On its face Finance Act 1985 section 69 subsec-or-para (2)s. 69(2)(b) required only a disposal of an asset used for the purposes of "a business", and not "a business of the individual making the disposal" and the onus was on the Revenue to justify reading into the section the words "of the individual making the disposal" or some like formula. But on its true construction Finance Act 1985 section 69 subsec-or-para (2)s. 69(2)(b), read in its context and with due regard to its place in the scheme of the Act, the reference was to the business of the individual making the disposal, and accordingly in this case one of the conditions for qualifying for relief was not satisfied. If the business, or part of the business, was disposed of it could only be the business of the claimant himself. But the conditions for attracting relief depended on use, not ownership, and this disposal of assets was not a disposal of assets used by the individual but of assets used by the company.
By originating motion pursuant to the Taxes Management Act 1970 section 56ATaxes Management Act 1970, s. 56A (as substituted by SI 1994/1813SI 1994/1813 with effect from 1 September 1994), the personal representatives of SC Harbour deceased appealed to the High Court against the following decision of a special commissioner (Mr THK Everett).
The personal representatives of Mr SC Harbour deceased ("Mr Harbour") appeal against an assessment to capital gains tax for the year ending 5 April 1988 in the estimated sum of £30,000.
The issue in this appeal is a narrow one, turning on the construction ofFinance Act 1985 section 69Finance Act 1985, s.69. There is no dispute between the parties as to the facts, which are the subject of an agreed statement. The bundle of documents placed before me included correspondence to which almost no reference was made during the hearing.
In 1988, Mr Harbour, having obtained the age of 60 years, sold some land. It is that transaction which has given rise to this appeal and the parties have agreed that the question for my determination is as follows:
Whether or not retirement relief under the provisions ofFinance Act 1985 section 69s. 69 of the Finance Act 1985 is available when computing the chargeable gain which arose on the disposal of the land in January 1988.
The agreed facts may be stated shortly as follows:
1. On 29 January 1988 Mr Harbour disposed of 163 acres of land known as Mayfield Farm, Besthorpe, Norfolk ("the land"), of which he owned the freehold personally.
2. At the time of the disposal of the land it was used for the purposes of the business of S C Harbour (Besthorpe) Ltd ("the company") and at the time of the sale the company classed to carry on its business.
3. At the time of the disposal of the land and the cessation of the business, Mr Harbour had attained the age of 60 years.
4(a) Throughout a period of some 40 years ending with the date on which the company ceased to carry on its business, the business was owned by the company and the business of the company consisted wholly or mainly of the carrying on of a trade or trades.
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(b) For the purposes Finance Act 1985 schedule 20 subsec-or-para 1Finance Act 1985, Sch. 20, para. 1(2):
(i) The company was at all material times a trading company, and
(ii) the company was at all material times Mr Harbour's family company, and
(iii) Mr Harbour was at all material times a full-time working director of the company.
5. The date on which the business of the company ceased to be carried on falls within the period of one year before the date of the disposal of the land for the purposes of Finance Act 1985 section 69 subsec-or-para (4)Finance Act 1985, s. 69(4)(c).
6. The company paid rent to Mr Harbour for the use of the land.
7. At no time did Mr Harbour make a disposal of his shares in the company qualifying for retirement relief as a material disposal of business assets pursuant to Finance Act 1985 section 69 subsec-or-para (2) section 69 subsec-or-para (5)Finance Act 1985, ss. 69(2)(c) and (5).
8. There was not material disposal of business assets with which the disposal of the land could have been associated within Finance Act 1985 section 70 subsec-or-para (6)Finance Act 1985, s. 70(6).
Finance Act 1985 section 69Section 69Finance Act 1985 is headed "Relief for Disposals by Individuals on Retirement from Family Business" and provides, in so far is relevant, as follows:
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(1) Relief from capital gains tax shall be given, subject to and in accordance with Finance Act 1985 schedule 20Schedule 20 to this Act, in any case where a material disposal of business assets is made by an individual who, at the time of the disposal, -
(a) has obtained the age of 60 …
(2) For the purposes of this section and Finance Act 1985 schedule 20Schedule 20 to this Act, a disposal of business assets is-
(a) a disposal of the whole or part of a business, or
(b) a disposal of one or more assets which, at the time at which a business ceased to be carried on, were in use for the purposes of that business, …
and the question whether such a disposal is a material disposal shall be determined in accordance with the following provisions of the section.
(3) A disposal of the whole or part of a business is a material disposal if, throughout a period of at Ieast one year ending with the date of the disposal, the relevant conditions are fulfilled and, in relation to a disposal, those conditions are fulfilled at any time if at the time the business is owned by the individual making the disposal or-
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(a) the business is owned by a company-
(i) which is a trading company, and
(ii) which is either that individual's family company or a member of a trading group of which the holding company is that individual's family company …
(b) that individual is a full-time working director of that company …
(4) A disposal of assets such as is mentioned in Finance Act 1985 section 69 subsec-or-para (2)sub-section (2)(b) above is a material disposal if-
(a) throughout a period of at least one year ending with the date on which the business ceased to be carried on the relevant conditions are fulfilled and, in relation to such a disposal, those conditions are fulfilled at any time if at that time either the business was owned by the individual making the disposal or Finance Act 1985 section 69 subsec-or-para (3) section 69 subsec-or-para (3)paragraphs (a) and (b) of sub-section (3) above apply; and
(b) on or before the date on which the, business ceased to be carried on, the individual making the disposal had either obtained the age of 60 … ; and
(c) the date on which the business ceased to be carried on falls within the permitted period before the date of the disposal.
Accordingly, retirement relief is available in any case where there is a material disposal of business assets by an individual who has attained the age of 60 years.
This appeal is unusual in that it appears to be common ground that on a literal interpretation of Finance Act 1985 section 69 subsec-or-para (2)s. 69(2)(b) the appellants are entitled to succeed. However, Mr Rezvi for the respondent inspector contends that the whole scheme of the legislation must be considered and that if one does not construe Finance Act 1985 section 69 subsec-or-para (2)s. 69(2)(b) in isolation, one is driven to the conclusion that its application is confined to assets of the business which are used for the purpose of that business, i.e. assets which are owned by a business. Mr Rezvi contends that Finance Act 1985 section 70 subsec-or-para (6)s. 70(6) applies to assets outside the business which...
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