Robert Charles Plumbly & Others and Another v Peter Spencer and Another
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE ROBERT WALKER |
| Judgment Date | 17 June 1999 |
| Judgment citation (vLex) | [1999] EWCA Civ J0617-23 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | CHRVF 1997/0304/3 |
| Date | 17 June 1999 |
[1999] EWCA Civ J0617-23
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE LIGHTMAN)
Royal Courts of Justice
The Strand
London
The Lord Chief Justice of England and Wales
(Lord Bingham of Cornhill)
Lordjusticeotton
and
Lord Justice Robert Walker
CHRVF 1997/0304/3
MR ANDREW SOARES (instructed by Messrs Cameron Markby Hewitt, London EC3N 4BB) appeared on behalf of THE APPELLANT
MR MICHAEL FURNESS (instructed by the Inland Revenue Solicitor's Office) appeared on behalf of THE RESPONDENT
Thursday17 June1999
This is the judgment of the court on an appeal from an order of Lightman J (whose judgment is reported at [1997] STC 301, [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 —8 made on Mr S. C. 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 Act 1979). 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 —8 year of assessment were ss. 69 and 70 of, and Schedule 20 to, the Finance Act 1985. Those provisions were amended by the Finance Act 1991 and have now been consolidated as ss 163 and 164 of, and Schedule 6 to, 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, S C 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 Schedule 20, paragraph 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 —8 but since reduced to 50 years) or has retired on ill-health grounds below that age.
However by 1987 —8 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 sections 69 and 70, and that those in Schedule 20 are merely ancillary. Sections 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 Part II of Schedule 20. Part I of that schedule contains interpretation provisions applicable both to sections 69 and 70 and to Part II of the schedule. The definitions of 'qualifying disposal' and 'qualifying period' in Schedule 20, paragraph 4(1) and (2) (which draw together much of the detail in sections 69 and 70) are particularly important. Thus although s. 69 focuses on the minimum period of one year, it becomes apparent from the definition of 'qualifying period' in Schedule 20, paragraph 4(2) and from the 'basic rule' in paragraph 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 s. 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 s. 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 Schedule 20, Part 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) 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, or
(c) a disposal of shares or securities of a company …"
The expression 'part of a business' has been considered in several reported decisions of which the most recent is Pepper v Daffurn [1993] STC 466, [1993] BTC 277. In that case Jonathan Parker J suggested (at pp. 471 and 283 respectively) that paragraph (a) is intended to relate to the disposal of the whole or part of a business as a going concern. That is plainly its primary purpose. Paragraph (a) does not in terms refer to a disposal of assets whereas paragraph (b) is in terms directed to a disposal of assets following on cessation of a business. Nevertheless it is clear that under both paragraphs the relief is linked to a disposal of 'chargeable business assets comprised in a qualifying disposal' (Schedule 20, paragraph 6). The definition of 'chargeable business asset' is in Schedule 20, paragraph 12(2), to which it will be necessary to return.
Subsections (3), (4) and (5) of section 69 then spell out what is a material disposal under paragraphs (a), (b) and (c) respectively of subsection (2). Subsection (3) requires that under paragraph (a) the business must have been owned throughout the qualifying period by the individual making the disposal (a condition extended by subsection (8) to include the disposal of a partnership interest) or by a company meeting the requirements of subsection (3)(a) and (b). Subsection (4) provides that under paragraph (b) there are three requirements : (a) the business must throughout the qualifying period have satisfied the same ownership conditions as are set out in subsection (3); (b) the individual making the disposal must have satisfied the age or ill health requirement at the time of cessation of the business (as well as at the time of the disposal); and (c) the period between cessation and the disposal must not exceed one year, or such longer period as the Board of Inland Revenue may allow (see the definition of 'permitted period' in Schedule 20, paragraph 1(2)). Subsection (5), as supplemented by subsections (6) and (7), imposes similar requirements in relation to a disposal of shares in a family trading company. It is not necessary for present purposes to go into the detail of those requirements. Subsection (8) operates to equate a partner with a sole trader for the purposes of section 69.
Section 70 extends retirement relief in three ways. Subsections (1) and (2) extend the relief to certain employees and office-holders. Subsections (3), (4) and (5) (together with provisions in Schedule 20) extend the relief to material disposals of business assets by trustees. The detail of those provisions is not relevant to this appeal. But subsections (6) and (7) are important. Where an individual obtains relief under s. 69 for a disposal of a partnership interest or of shares in a family company, s. 70(6) extends the relief so that it also covers an 'associated disposal of assets' meeting the three requirements in s. 70(7) -
(a) the associated disposal takes place 'as part of a withdrawal' of the individual from participation in the business of the partnership or family company;
(b) the asset was used for that business immediately before the disposal (or earlier cessation of the business); and
(c) the asset was used during all or part of the individual's period of ownership either for the last-mentioned business or for another business falling within s. 70(7)(c).
Where s. 70(7)(c) is only partly satisfied, Schedule 20 paragraph 10 operates to reduce the extent of the relief. It is also reduced, under paragraph 10(1)(c), if the availability of an asset for business use depended on the payment of rent.
A typical example of the operation of s. 70(6) and (7) would be the case of a farmer (like Mr Harbour) who is the sole owner of freehold agricultural land but permits it to be occupied and...
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