Property unit trust scheme — Clearance for scheme by tax inspector — Withdrawal of clearance by Financial Institutions Division — Whether Revenue entitled to withdraw assurances — High Court holding in Revenue’s favour — Scheme promoters failing to make full disclosure of scheme details — Court of Appeal upholding decision
In March 1989 a property development company (“WWL”) acquired the 200-year lease of a site at South Quay in the London Docklands Enterprise Zone. It sold the lease and the partially completed development for £28.1 m to a development company, South Quay Ltd (“SQL”), formed by creditors of WWL for completing the development. SQL incurred a further £44 m expenditure including the acquisition of the freehold, but then, in May 1992 a receiver was appointed. In order to raise further investment of £95 m it was proposed to set up an enterprise unit trust scheme sponsored by the Matrix Securities Ltd (“the applicants”). Under section 10A of the Capital Allowances Act 1990 tax benefits were available to investors in industrial buildings in Government designated enterprise zones. Under this scheme a substantial part of the unit price was provided by a loan from Hill Samuel.
The intended effect of the scheme was that each investor would claim capital allowances at his marginal rate on 98% of each £1,000 invested (allowing for the disallowable cost of the land). On July 15 1993 the applicants sent two copies of a letter requesting Revenue clearance for the scheme to the tax inspector. On July 27 the inspector faxed a letter giving clearance. On September 9 a follow-up letter was sent to the Revenue setting out details of changes and seeking confirmation that the changes did not affect the original clearance. On September 17 contracts for the purchase of the building were exchanged with a completion date of November 12. Half the necessary funds had been received by subscriptions by October 8. On that date the Financial Institutions Division of the Revenue wrote to the applicants that the clearance had been wrongly given and withdrew the inspectors’ confirmation. The applicants sought judicial review of the decision claiming that the Revenue was not entitled to withdraw its assurances and that to do so was an abuse of power. The High Court held that the applicants had failed to tell the inspector that the scheme involved elements which might concern the Financial Institutions Division. The applicants appealed.
Held The appeal was dismissed.
1. The primary duty of the Revenue was to collect taxes which were by statute due and not to grant allowances which statute did not warrant. There might be some circumstances in which allowances were available in order to induce certain types of expenditure in the more general interests of the nation. People should not be deterred from making the relevant expenditure by uncertainty as to whether allowances would be granted.
2. However, if the taxpayer sought assurances as to the taxation consequences of a course of action he proposed, there must be disclosure on his part.
3. The court was bound to uphold the principle that taxpayers could only rely upon an informal advance clearance if the critical issues were stated clearly in the application — or so obvious that no express statement was needed. The clearance application in the present case did not satisfy that high standard.
David Goldberg QC, David Pannick QC, John Walters and Hugh McKay (instructed by Theodore Goddard) appeared for the applicants; Lord Lester QC and Charles Flint (instructed by the solicitor to the Inland Revenue) appeared for the Commissioners.
