Plumbly v Spencer (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 17 June 1999 |
| Date | 17 June 1999 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Lord Bingham of Cornhill CJ, Otton and Robert Walker LJJ.
Andrew Soares (instructed by Cameron Markby Hewitt) for the appellants.
Michael Furness (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
Frankland v IR Commrs TAX[1997] BTC 8045
Marriott v Lane (HMIT) TAX[1996] BTC 297
Pepper (HMIT) v Daffurn TAX[1993] BTC 277
Rye v Rye ELR[1962] AC 496
Capital gains tax - Retirement relief - Disposal of business assets - Sale of land by taxpayer having reached the age of 60 - Land leased by taxpayer to farming company until disposal - Whether retirement relief available - Taxation of Chargeable Gains Act 1992 section 163 subsec-or-para (2) section 163 subsec-or-para (2)Finance Act 1985, ss. 69(2)(a), (b) (Taxation of Chargeable Gains Act 1992 section 163 subsec-or-para (2) section 163 subsec-or-para (2)Taxation of Chargeable Gains Act 1992, ss. 163(2)(a), (b)).
This was an appeal by the personal representatives of Mr SC Harbour ("the appellants") against a judgment of Lightman J ([1997] BTC 147) that Mr Harbour was not entitled to retirement relief on the disposal of a farm.
On 29 January 1988, having attained the age of 60 years, Mr Harbour 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 Mr Harbour's family company ("the company") of which he was a full time working director and the business ceased at the time of the disposal. The company paid rent to Mr Harbour.
A special commissioner and the judge held that the gain realised on the disposal of the land by the company did not attract retirement relief because the provisions of the Taxation of Chargeable Gains Act 1992 section 163 subsec-or-para (2)Finance Act 1985, s. 69(2)(b) that "a disposal of … assets which, at the time at which a business ceased to the carried on, were in use for the purposes of that business" were not satisfied, and, since Mr Harbour had not sold the shares in the company, no "associated disposal" was made underTaxation of Chargeable Gains Act 1992 section 164s. 70.
The Revenue contended that there was an overlap between theTaxation of Chargeable Gains Act 1992 section 163 subsec-or-para (2)Finance Act 1985, s. 69(2)(b) (disposal of business assets) and Taxation of Chargeable Gains Act 1992 section 164s. 70 which could not have been intended, and also there would be difficulties in applying the detailed provisions ofTaxation of Chargeable Gains Act 1992 schedule 6Sch. 20, para. 6-11.
Held, allowing the appellants' appeal:
1. The improbability of overlap between Taxation of Chargeable Gains Act 1992 section 163 subsec-or-para (2) section 164s. 69(2)(b) and s. 70(6) being intended, and the uneven results capable of being produced under Taxation of Chargeable Gains Act 1992 schedule 6Sch. 20, para. 6-11, could not overcome the language of Taxation of Chargeable Gains Act 1992 section 163 subsec-or-para (2)s. 69(2)(a). That language was specific and directly in point. The disposal of the land fell within the definition of the disposal of a business asset as "the disposal of the whole or part of a business".
2. That result was not in any way absurd or even particularly anomalous. It might be thought more anomalous if Mr Harbour were denied any business relief after the company had been farming for 40 years because he or his advisers omitted to take one of two otherwise fairly pointless steps (that is the transfer of the farming business to Mr Harbour personally just before its cessation, or the disposal of his shares in the dormant company to create an associated disposal within s. 69(4)).
This is the judgment of the court on an appeal from an order of Lightman J ([1997] BTC 147) dismissing a taxpayer's appeal from a decision of a special commissioner. The appeal relates to an assessment to capital gains tax for 1987-88 made on Mr SC Harbour. Mr Harbour has since died and the appellants are his personal representatives.
The appeal is concerned with retirement relief. That relief has formed part of the capital gains tax since its inception (originally it was contained in s. 34 of the Finance Act 1965,consolidated as s. 124 of the Capital Gains Tax Act1979). It has been developed by successive amendments, some giving statutory effect to what had started as extra-statutory concessions. The provisions in force for the 1987-88 year of assessment wereTaxation of Chargeable Gains Act 1992 section 163 section 164ss. 69 and 70 of, and Taxation of Chargeable Gains Act 1992 schedule 6Sch. 20 to, the Finance Act 1985. Those provisions were amended by the Finance Act 1991 and have now been consolidated as Taxation of Chargeable Gains Act 1992 section 163 section 164ss. 163 and 164 of, andTaxation of Chargeable Gains Act 1992 schedule 6Sch. 6to, the Taxation of Chargeable Gains Act 1992 (with yet further amendments made by the Finance Act 1996). All the following references to statutory provisions are to those of the Finance Act 1985.
The facts set out in the special commissioner's decision were not in dispute, and are quite straightforward. On 29 January 1988 Mr Harbour (who had attained the age of 60 years) disposed of 163 acres (about 65 hectares) of agricultural land, known as Mayfield Farm, Besthorpe, Norfolk. The farm was until the disposal used for the farming business carried on by a private company, SC Harbour (Besthorpe) Ltd ("the company"). The company had owned the business for some 40 years, and at all material times it was a trading company; it was Mr Harbour's family company; and it had Mr Harbour as a full-time working director (in each case, within the meanings in Sch. 20, para. 1). The company paid rent to Mr Harbour for the use of the land. On the disposal of the land the company ceased to trade. Mr Harbour did not dispose of his shares in the company or make any other disposal capable of constituting an "associated disposal of assets" within the meaning of s. 70(7).
The general legislative purpose of retirement relief is reasonably clear, that is to afford special relief to an individual at or near retirement age who has devoted a part of his or her working life to a trading enterprise, either as a sole trader or as a partner or as a full-time working director of a family company. The relief is granted in respect of a "material disposal" of "business assets" by an individual who has attained a specified age (60 years for 1987-88 but since reduced to 50 years) or has retired on ill-health grounds below that age.
However by 1987-88 the relief had become quite complex and the statutory provisions call for careful study (and study of them as a whole) in order to discern their effect. It would be a mistake to suppose that all the most important provisions are in Taxation of Chargeable Gains Act 1992 section 163 section 164ss. 69 and 70, and that those in Taxation of Chargeable Gains Act 1992 schedule 6Sch. 20 are merely ancillary. Taxation of Chargeable Gains Act 1992 section 163 section 164Sections 69 and 70 set out the minimum conditions for obtaining some measure of relief, but the extent of the relief to be granted in any particular case depends on Pt. II of Taxation of Chargeable Gains Act 1992 schedule 6Sch. 20. Part I of that Schedule contains interpretation provisions applicable both to Taxation of Chargeable Gains Act 1992 section 163 section 164ss. 69 and 70 and to Pt. II of the Schedule. The definitions of "qualifying disposal" and "qualifying period" in Taxation of Chargeable Gains Act 1992 schedule 6Sch. 20, para. 4(1) and (2) (which draw together much of the detail in Taxation of Chargeable Gains Act 1992 section 163 section 164ss. 69 and 70) are particularly important. Thus although Taxation of Chargeable Gains Act 1992 section 163s. 69 focuses on the minimum period of one year, it becomes apparent from the definition of "qualifying period" in Taxation of Chargeable Gains Act 1992 schedule 6Sch. 20, para. 4(2) and from the "basic rule" in para. 13(1) of that Schedule that ten years' ownership is necessary in order to obtain the fullest measure of relief. A reader who looks only at the references in Taxation of Chargeable Gains Act 1992 section 163s. 69 to "a period of at least one year" might suppose that Parliament had been excessively preoccupied with the possibility of changes in the structure of a business (sole trader, partnership or family company) during the last year before its disposal or cessation.
Most of the relevant statutory provisions are set out in the judgment under appeal and it is not necessary to repeat them at length. But they do call for some commentary by way of explanation. The general scheme of Taxation of Chargeable Gains Act 1992 section 163s. 69 is (as already noted) to lay down the minimum conditions in which some measure of retirement relief may be obtained by an individual who makes a material disposal of business assets (the extent of the relief being regulated by Taxation of Chargeable Gains Act 1992 schedule 6Sch. 20, Pt. II). Subsection (1) lays down the requirements as to the individual's age or ill health. Subsection (2) defines a disposal of business assets-
a disposal of the whole or part of a business, or
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, or
a disposal of shares or...
To continue reading
Request your trial