Capital gains tax–Sale of house and part of garden followed about a year later by sale of rest of garden with benefit of outline planning permission–Claim for total exemption under section 29(2) of Finance Act 1965–Exemption not allowed in respect of part of garden sold subsequently
This was an
appeal by the Inland Revenue against a decision by the general commissioners
that a taxpayer who sold his house and part of the garden first, and
subsequently sold the remainder of the garden with outline planning permission
for a house, was entitled to exemption under section 29(2) of the Finance Act
1965 on the second sale notwithstanding that it was sold at a later time than
the house and part of the garden contained in the first sale.
Brian
Davenport (instructed by the Solicitor of Inland Revenue) appeared for the
appellant; the respondent appeared in person.
Giving
judgment BRIGHTMAN J said that in 1968, John Francis Edward Lynes bought the
freehold house Dalesford, Hailsham, East Sussex, for £6,920. He sold the house
and part of the garden in June 1971 for £10,000. The remainder of the garden,
with outline planning approval, was sold in May 1972, also for £10,000. Mr
Lynes was assessed to capital gains tax for 1972-3 in the sum of £6,930. He
appealed and the general commissioners held that section 29(1) of the Finance
Act 1965 identified the two items which could qualify for exemption from the
tax–the house and the garden–and that section 29(2), which contained the
exemption, applied. The words of section 29(2) were ‘The gain shall not be a
chargeable gain if the dwelling-house or part of a dwelling-house has been the
individual’s only or main residence throughout the period of ownership, or
throughout the period of ownership except for all or any part of the last 12
months of that period.’ The question was
a short one and was ‘Is the gain resulting from the disposal of the remainder
of the garden a taxable gain?’
The contention
of the taxpayer was that the exemption was equally applicable whether the house
and garden were sold by one or two transactions. He relied on the words of
section 29(1) which described in (a) the house and in (b) ‘land which he has
for his own occupation and enjoyment with that residence as its garden or
grounds up to an area (inclusive of the site of the dwelling-house) of one acre
. . .’ The taxpayer contended that the
phrase ‘land which he has’ did not necessarily imply ‘at the date of disposal’
and said it should mean land which he has at any time while owning the residence.
The remainder of the garden was land which the taxpayer had for his own
occupation and enjoyment with the dwelling-house as its garden during the whole
period of his ownership of the dwelling-house. The taxpayer submitted,
therefore, that there was much good sense in saying that it should fall within
the exemption of section 29(2). The contention of the Revenue was that the
words ‘has for his own occupation and enjoyment’ referred only to the moment of
disposal. Accordingly the garden would not be exempt in any case where it was
disposed of at a time when the taxpayer no longer owned the dwelling-house to
which the garden had been attached. It was also contended by the Revenue that
there was no provision in the section which would allow for the apportionment
of the gain on some sort of time basis in relation to the garden comparable
with the apportionment which was appropriate in certain circumstances in the
case of the dwelling-house.
The
commissioners had relied on the last part of section 29(2) in reducing the
assessment to nil. They had apparently reasoned that it was the intention of
Parliament that the dwelling-house should be exempt notwithstanding that a few
months before the sale the owner went out of occupation, but that if they did
not accede to the taxpayer’s argument in the present case they would, in
effect, be saying that Parliament intended that a garden should not qualify for
exemption in a case where a taxpayer went out of residence a month before he
sold.
The cases put
by each side produced anomalies and it was no part of the court’s task to try
to balance out the various anomalies and twist the language to produce what
might seem to be the most sensible result. The difficulty in relating the
expression ‘land which he has for his own occupation . . .’ etc to any moment except
the actual time of disposal was that section 29(1)(a) looked both to the
present and past while section 29(1)(b) was looking only to the present, ie
‘land which he has . . .’ In the face of
that comparative wording it did not seem possible, without doing violence to
the language of section 29(1)(b), to read it in the way desired by the
taxpayer. In those circumstances the Revenue argument must be accepted and the
appeal allowed.
The appeal
was allowed and the assessment restored. No application was made for costs.
