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England and Wales Court of Appeal (Civil Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> HM Revenue and Customs v The Executors of Lord Howard of Henderskelfe [2014] EWCA Civ 278 (19 March 2014) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2014/278.html Cite as: [2014] 3 All ER 50, [2014] EWCA Civ 278, [2014] WTLR 791, [2014] BTC 12, [2014] STI 1560, [2014] 1 WLR 3902, [2014] WLR 3902, [2014] STC 1100 |
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ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
Mr Justice Morgan
[2013] UKUT 129 (TCC)
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE McCOMBE
and
LORD JUSTICE BRIGGS
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THE COMMISSIONERS OF HER MAJESTY'S REVENUE AND CUSTOMS |
Appellants |
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- and - |
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THE EXECUTORS OF LORD HOWARD OF HENDERSKELFE (DECEASED) |
Respondents |
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Mr William Massey QC (instructed by Forsters LLP) for the Respondents
Hearing dates: 3 and 4 March 2014
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Crown Copyright ©
Lord Justice Rimer :
Introduction
More facts
The legislation
'44. Meaning of "wasting asset"
(1) In this Chapter "wasting asset" means an asset with a predictable life not exceeding 50 years but so that –
(a) freehold land shall not be a wasting asset whatever its nature, and whatever the nature of the buildings or works on it;
(b) "life", in relation to any tangible movable property, means useful life, having regard to the purpose for which the tangible assets were acquired or provided by the person making the disposal;
(c) plant and machinery shall in every case be regarded as having a predictable life of less than 50 years, and in estimating that life it shall be assumed that its life will end when it is finally put out of use as being unfit for further use, and that it is going to be used in the normal manner and to the normal extent and is going to be so used throughout its life as so estimated;
(d) a life interest in settled property shall not be a wasting asset until the predictable expectation of life of the life tenant is 50 years or less, and the predictable life of life interests in settled property and of annuities shall be ascertained from actuarial tables approved by the Board.
(2) In this Chapter "the residual or scrap value", in relation to a wasting asset, means the predictable value, if any, which the wasting asset will have at the end of its predictable life as estimated in accordance with this section.
(3) The question what is the predictable life of an asset, and the question what is its predictable residual or scrap value at the end of that life, if any, shall, so far as those questions are not immediately answered by the nature of the asset, be taken, in relation to any disposal of the asset, as they were known or ascertainable at the time when the asset was acquired or provided by the person making the disposal.
45. Exemption for certain wasting assets
(1) Subject to the provisions of this section, no chargeable gain shall accrue on the disposal of, or of an interest in, an asset which is tangible movable property and which is a wasting asset.
(2) Subsection (1) above shall not apply to a disposal of, or of an interest in, an asset –
(a) if, from the beginning of the period of ownership of the person making the disposal to the time when the disposal is made, the asset has been used and used solely for the purposes of a trade, profession or vocation and if that person has claimed or could have claimed any capital allowance in respect of any expenditure attributable to the asset or interest under paragraph (a) or (b) of section 38(1) [being acquisition and disposal costs]; or
(b) if the person making the disposal has incurred any expenditure on the asset or interest which has otherwise qualified in full for any capital allowance.
(3) In the case of the disposal of, or of an interest in, an asset which, in the period of ownership of the person making the disposal, has been used partly for the purposes of a trade, profession or vocation and partly for other purposes, or has been used for the purposes of a trade, profession or vocation for part of that period, or which has otherwise qualified in part only for capital allowances –
(a) the consideration for the disposal, and any expenditure attributable to the asset or interest by virtue of section 38(1)(a) and (b), shall be apportioned by reference to the extent to which that expenditure qualified for capital allowances, and
(b) the computation of the gain shall be made separately in relation to the apportioned parts of the expenditure and consideration, and
(c) subsection (1) above shall not apply to any gain accruing by reference to the computation in relation to the part of the consideration apportioned to use for the purposes of the trade, profession or vocation, or to the expenditure qualifying for capital allowances.
(4) Subsection (1) above shall not apply to a disposal of commodities of any description by a person dealing on a terminal market or dealing with or through a person ordinarily engaged in dealing on a terminal market.'
'46. Straightline restriction of allowable expenditure
(1) In the computation of the gain accruing on the disposal of a wasting asset it shall be assumed –
(a) that any expenditure attributable to the asset under section 38(1)(a) after deducting the residual or scrap value, if any, of the asset, is written off at a uniform rate from its full amount at the time when the asset is acquired or provided to nothing at the end of its life, and
(b) that any expenditure attributable to the asset under section 38(1)(b) is written off from the full amount of that expenditure at the time when that expenditure is first reflected in the state or nature of the asset to nothing at the end of its life,
so that an equal daily amount is written off day by day. …'
'47. Wasting assets qualifying for capital allowances
(1) Section 46 shall not apply in relation to a disposal of an asset –
(a) which, from the beginning of the period of ownership of the person making the disposal to the time when the disposal is made, is used and used solely for the purposes of a trade, profession or vocation and in respect of which that person has claimed or could have claimed any capital allowance in respect of any expenditure attributable to the asset under paragraph (a) or paragraph (b) of section 38(1), or
(b) on which the person making the disposal has incurred any expenditure which has otherwise qualified in full for any capital allowance. …'
(2) In the case of the disposal of an asset which, in the period of ownership of the person making the disposal, has been used partly for the purposes of a trade, profession or vocation and partly for other purposes, or has been used for the purposes of a trade, profession or vocation for part of that period, or which has otherwise qualified for capital allowances –
(a) the consideration for the disposal, and any expenditure attributable to the asset by paragraph (a) or paragraph (b) of section 38(1) shall be apportioned by reference to the extent to which that expenditure qualified for capital allowances,
(b) the computation of the gain shall be made separately in relation to the apportioned parts of the expenditure and consideration,
(c) section 46 shall not apply for the purposes of the computation in relation to the part of the consideration apportioned to use for the purposes of the trade, profession or vocation, or to the expenditure qualifying for capital allowances, and
(d) if an apportionment of the consideration for the disposal has been made for the purposes of making any capital allowance to the person making the disposal or for the purpose of making any balancing charge on him, that apportionment shall be employed for the purposes of this section, and
(e) subject to paragraph (d) above, the consideration for the disposal shall be apportioned for the purposes of this section in the same proportions as the expenditure attributable to the asset is apportioned under paragraph (a) above.'
A little history
'19. – (1) Subject to the provisions of this Act, where the person carrying on a trade in any chargeable period has incurred capital expenditure on the provision of machinery or plant for the purposes of the trade, an allowance (in this Chapter referred to as a "writing down allowance") shall be made to him for that chargeable period on account of the wear and tear of any of the machinery or plant which belongs to him and is in use for the purposes of the trade at the end of that chargeable period or its basis period. …
42. – (1) Where machinery or plant is let upon such terms that the burden of the wear and tear thereof falls directly upon the lessor, there shall be made to him, for each chargeable period, an allowance on account of the wear and tear of so much of the machinery or plant as is in use at the end of the chargeable period;
Provided that if the letting continues for part only of the chargeable period, the allowance, as computed in accordance with the preceding provisions of this Chapter, shall be proportionately reduced.
(2) The provisions of this Chapter shall apply in relation to any such lessor of machinery or plant as is mentioned in subsection (1) of this section as if the machinery or plant were, during the period of the letting, in use for the purposes of a trade carried on by him, and as if any reference to writing-down allowances included a reference to any allowance made under this section.
43. –(1) Where machinery or plant is let to the person by whom the trade is being carried on, on the terms of his being bound to maintain the same and deliver it over in good condition at the end of the lease, the machinery or plant shall be deemed to belong to that person for the purpose of section 19 of this Act and that person shall be deemed for those purposes to have incurred, at the time of the letting, capital expenditure equal to so much of the capital expenditure on the provision of the machinery or plant as may appear to the inspector to be just and reasonable:
Provided that this subsection shall not apply to any machinery or plant unless the inspector is satisfied, having regard to all the relevant circumstances of the case, that the burden of the wear and tear of the machinery or plant will in fact fall directly upon that person. …'
Sections 19, 42 and 43 substantially reproduce sections 280, 298 and 299 of the Income Tax Act 1952.
The appeal
'There is no definition of plant in the Act: but, in its ordinary sense, it includes whatever apparatus is used by a business man for carrying on his business, - not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business …'.
'34. … in the context of the [TCGA], the question whether an object is plant is to be answered by applying the established test to the object. If the object is plant on that basis then it is to be regarded as plant whether one is considering the position of the trader using the plant or the owner of the plant and no distinction is to be made between these persons.'
And:
43. … the meaning of plant in section 44(1)(c) of the [TCGA] does not permit a finding that an asset is plant in the hands of a person using the asset in his business but, at the same time, not plant in the owner of the asset. … the Painting was plant within section 44(1)(c) of the [TCGA] and in the absence of any argument that the Painting had ceased to be plant a short time before it was disposed of by the Executors, the Executors are entitled to the exemption conferred by section 45(1) of the [TCGA].'
'24. … both the owner of the Painting and the Company considered that the Painting would be available to the Company for a considerable, albeit indefinite, period, and that is what happened. The trigger for the owner's decision to take back the Painting was the need to raise capital in connection with a divorce settlement.'
Lord Justice McCombe :
Lord Justice Briggs :