West (Inspector of Taxes) v O'Neill ; Same v Crossland
| Jurisdiction | England & Wales |
| Judgment Date | 22 January 1999 |
| Date | 22 January 1999 |
| Court | Chancery Division |
Chancery Division.
Lindsay J.
David Milne QC and Richard Vallatt (instructed by the Solicitor, Nationwide Building Society) for the taxpayers.
Christopher Tidmarsh (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
British & Beningtons Ltd v NW Cachar Tea Co Ltd ELR[1923] AC 48
Frankland v IR Commrs TAX[1997] BTC 8045
IR Commrs v McGuckian TAXWLR[1997] BTC 346; [1997] 1 WLR 991
Mangin v IR Commrs ELR[1971] AC 739
Omar Parks Ltd v Elkington WLR[1992] 1 WLR 1270
Income tax - Taxable benefit - Beneficial loan to employee from employer - Exception from charge - Exemption if loan on terms available to the public at the time when the loan was first made - Whether exception applied where terms of a mortgage were varied - Whether variation of terms constituted a new loan - Income and Corporation Taxes Act 1988 section 160 section 161 subsec-or-para (1A)Income and Corporation Taxes Act 1988, ss. 160, 161(1A).
This was an appeal by the Revenue against two decisions of the general commissioners for Swindon that alteration in the terms of a loan constituted the making of a new loan to bring the taxpayers within the exception to a charge to tax on beneficial loans to employees.
Both taxpayers were employees of the Nationwide Building Society ("Nationwide"). In 1993 Mr Crossland borrowed £100,000 as a mortgage secured on his home at a variable rate of interest (at the time 7.85 per cent per annum). Under the Nationwide's staff scheme, he was eligible to pay a concessionary rate of interest of four per cent on the first £30,000 of the loan.
In the Budget of November 1993, it was announced that a new provision would introduce an exception from the charge to tax on beneficial loan arrangements where the terms were comparable to loans available to the general public when the loan was first made. The exception was enacted as Income and Corporation Taxes Act 1988 section 161 subsec-or-para (1A)s. 161(1A) of the Income and Corporation Taxes Act 1988.
After the Budget announcement, Mr Crossland's mortgage was transferred at his request in writing, without repayment of the existing loan, into an account at a rate of 5.50 per cent per annum fixed for two years on terms offered by Nationwide to the public. That rate was less than the "official rate" which determined the amount of a charge under theIncome and Corporation Taxes Act 1988 part II schedule 7Income and Corporation Taxes Act 1988, Sch. 7, Pt. II.
Mr O'Neill's circumstances were similar.
The Revenue contended that the exception applied only if the conditions of Income and Corporation Taxes Act 1988 section 161 subsec-or-para (1A)s. 161(1A) were satisfied when the loan was first made. In these cases, no new loan was made. No further sum was advanced. The original loan was merely modified or varied.
The taxpayers contended that alteration in the terms of the loans was so fundamental as to be regarded as rescission of the existing loan and the making of a new one. When the terms of a loan were varied by an agreement in writing, a new contract arose on terms not previously agreed. Where there was a "new deal" there was a new loan. Alternatively, the alteration was the "facilitation" of a loan withinIncome and Corporation Taxes Act 1988 section 160 subsec-or-para (5)s. 160(5). Moreover, it would be unjust to disallow the exemption in circumstances where the taxpayers could have obtained the exemption by repaying their loans and taking new ones.
Held, allowing the Revenue's appeal:
1. The changes made in the terms of the loans were not fundamental and rescission could not be implied. On the natural and ordinary meaning of Income and Corporation Taxes Act 1988 section 161 subsec-or-para (1A)s. 161(1A) of the 1988 Act, the loans, which remained outstanding throughout, were made only when they were first advanced.
2. It was not a natural use of the words of Income and Corporation Taxes Act 1988 section 160 subsec-or-para (5)s. 160(5) to regard "facilitating" a loan as meaning facilitating an existing loan. Were that intended, the words in Income and Corporation Taxes Act 1988 schedule 7 subsec-or-para 2Sch. 7, para. 2(a) "facilitating the continuation of a loan already in existence" would have been used.
3. It would not be unjust to deprive the taxpayers of the exception simply because they could have obtained it by repaying the loan and taking a fresh one.
At a meeting of the general commissioners for Northeast Wiltshire held on 13 March 1997 at the Magistrates' Court, Princes Street, Swindon, Wiltshire Mr Kevin Gerard Crossland and Mr David John O'Neill ("the taxpayers"), both employees of the Nationwide Building Society ("Nationwide"), appealed against Sch. E income tax assessments for 1994-95 raised by Adrian John West, HM inspector of taxes ("the appellant"). The assessment related to the remuneration of the taxpayers received from Nationwide. The assessments included a charge to tax underIncome and Corporation Taxes Act 1988 section 160s. 160 of the Income and Corporation Taxes Act 1988 arising from beneficial loans from Nationwide to the taxpayers.
Details of the assessment were as follows:
Total Amount |
Amount of |
||
Appellant |
Tax Year |
Assessed |
Beneficial Loan |
Mr KG Crossland |
1994/95 |
£52,708 |
£2,161 |
Total Amount |
Amount of |
||
Appellant |
Tax Year |
Assessed |
Beneficial Loan |
Mr DJ O'Neill |
1994/95 |
£36,116 |
£1,363 |
The question for consideration by the commissioners in respect of the assessments was whether for the tax year 1994-95 the taxpayers were entitled to an exemption from the charge to tax under Income and Corporation Taxes Act 1988 section 160s. 160 of theIncome and Corporation Taxes Act 1988 in respect of beneficial loans by virtue of Income and Corporation Taxes Act 1988 section 161 subsec-or-para (1A)s. 161(1A).
Paragraphs 3 and 4 set out the appearances and the documents proved or admitted before the commissioners.
From the oral and documentary evidence the commissioners found that:
(a) Mr Crossland had at all material times been employed by Nationwide most recently as head of manpower planning, pensions and payroll.
(b) On 26 March 1993 Mr and Mrs Crossland received an offer of advance of £100,000 from Nationwide to be secured on their home at 19 Richmond Court, Ashton Keynes, Wiltshire. It was a variable interest rate mortgage subject to the society's general and special conditions. The interest rate quoted was 7.990 per cent being the rate at which equivalent mortgages were being offered by Nationwide to the general public at that time.
(c) Under the terms of Nationwide's Staff Mortgage Handbook employees of Nationwide who took out mortgages with Nationwide were eligible in certain circumstances to pay a concessionary rate of interest on the first £30,000 of the loan. Mr Crossland was so eligible. The concessionary rate of interest at all relevant times was four per cent.
(d) On 28 April 1993 Mr Crossland duly borrowed £100,000 from Nationwide on the above terms i.e. interest to be payable at four per cent on the first £30,000 of the loan and at 7.99 per cent on the remainder, save that (in accordance with terms also made available to the general public at that time) the variable interest rate was discounted to 7.85 per cent as the borrowing exceeded £60,000.
(e) On 5 January 1994 Mr Crossland (being a senior executive at Nationwide) applied to receive a salary supplement instead of a mortgage interest rate concession to which he was entitled. The application was successful and he received a salary supplement (paid under Sch. E in the normal way) from 1 February 1994. From that date the rate of interest chargeable on the first £30,000 of his mortgage would in consequence have reverted to the normal public variable rate.
(f) However, on the same date as above, namely 5 January 1994, Mr and and Mrs Crossland requested to transfer their existing mortgage account into a two-year fixed rate at 5.5 per cent per annum. Mr and Mrs Crossland paid a fee of £200 and agreed to comply with the fixed rate conditions which were exactly the same as those applied to the general public. By a letter dated 12 January 1994 Nationwide provisionally agreed to the request subject to the availability of sufficient "fixed rate" funding and the completion of a "fixed rate declaration" which stated that in completing the declaration they were agreeing to modify the mortgage conditions by allowing the substitution of a fixed rate in place of both the concessionary and the variable interest rate for a period of two years from l February 1994 after which date the society's prevailing variable rate would apply. (The letter accompanying the declaration referred to a variation in mortgage conditions and the temporary substitution of a fixed rate in place of the variable interest rate.)
(g) Mr and Mrs Crossland signed the fixed rate declaration on 16 January 1994. On 25 January 1994 Mr and Mrs Crossland were informed that their mortgage account would be transferred to a fixed interest rate scheme with effect from 1 February 1994. The balance of the loan outstanding remained at £99,492 following the transfer to the fixed interest rate scheme.
(h) On l February 1996 Mr Crossland redeemed the Nationwide mortgage.
From the oral and documentary evidence the commissioners found that:
(a) Mr O'Neill had at all material times been employed by Nationwide most recently as area manager, business finance.
(b) On 13 January 1992 Mr and Mrs O'Neill received an offer of advance of £66,000 from Nationwide to be secured on their home at Rivendale, The Green, Whitchurch, Hampshire. It was a variable interest rate mortgage subject to the...
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