Special Commissioners' Decisions - Allison Plager reports four recent Special Commissioners' cases.

Special Commissioners' Decisions
Allison Plager reports four recent Special Commissioners' cases.
Within the rules or not?
David Venables was a main shareholder in Ven Holdings Ltd, holding 20 per cent of the shares in his own right, and the other 80 per cent as settlor and trustee of his family discretionary trust. The company's business was development and construction, and by 1991 the group comprised ten companies with assets of some £7 million. By 1994, the group had shrunk to eight companies with assets of approximately £4 million. In June 1994, Mr Venables retired and gave up most of his responsibilities running the company, due in part to poor health, and became an unpaid non-executive director.
The pension scheme itself was established in 1980 by a trust deed between Fussell Estates Ltd, Mr Venables and Neill Denton to provide benefits for directors and employees of Fussell Estates. The scheme was approved under Chapter II of part II of the Finance Act 1970, but lost this status on 5 August 1994 because it did not amend its rules to comply with the Retirement Benefits Schemes (Restriction on Discretion to Approve) (Small Self Administered Schemes) Regulations 1991. However, the payments made to Mr Venables under appeal all occurred before 5 August 1994. The scheme rules as they applied to Mr Venables gave his normal retirement date as 13 December 2000, i.e. when he would be 60, and would have been a member of the company for 20 years. The rules permitted him to retire at any time after his fiftieth birthday with the consent of the company, but on reduced benefits. However, according to the trust deed which took precedence over the rules, the trustees only had discretion to pay a pension to a member who retired in 'normal health' once he was 50. There was no mention of retirement due to ill health, and the Special Commissioner described this as 'casus omissus'.
The relevant legislation is section 600, Taxes Act 1988, and this specifies that any payment not expressly authorised by the rules of the scheme will be chargeable to tax under Schedule E.
The issue before the Special Commissioner was whether Mr Venables had retired at the end of June 1994 in relation to the rules of his company pension scheme (the Fussell Pension Scheme). He said that the evidence showed that he had done so, and that he was not in normal health. The payments made to him under the pension scheme were therefore not expressly authorised under the scheme rules, and would therefore be subject to section 600.
For the taxpayer, John Hayward, a pensions consultant and former senior executive officer in the Revenue's Superannuation Funds Office, gave evidence of Revenue policy and practice in cases of early retirement on ill-health grounds where the taxpayer continued as a non-executive director. He spoke of there being a 'well established practice' by 1994 of allowing early pension benefits in such cases. However, the difficulties of providing evidence of Revenue practice to a standard sufficient to satisfy a tribunal then became apparent as the Commissioner found the evidence to be 'sketchy and speculative', despite Mr Hayward's senior status amongst practitioners in this field.
However, the Human Rights Act 1998 was then brought into play, with the taxpayer's adviser saying that the Pension Scheme Office's treatment of taxpayers in the same circumstances was inconsistent and amounted to unlawful discrimination contrary to Article 14 of the European Convention on Human Rights, as applied by the Human Rights Act 1998. The Special Commissioner said, however, that for the Human Rights Act to apply to a case of discrimination before the Act became effective, the proceedings had to have been instigated by a public authority. They had not in the instant case. It was the decision of the taxpayer to appeal the assessment, and the assessment was made by under section 29, Taxes Management Act 1970. He said that 'thousands of assessments are issued each year which are not appealed and it would be strange if proceedings had thereby been initiated or brought by the Revenue: nothing is at that point before any court or tribunal … If there is to be some doctrine of relation back to the assessment when and if an appeal is made, then one would expect that to be clear from the statute itself'.
In conclusion, the Commissioner said that the Schedule E assessment in respect of the payments made to Mr Venables by the pension scheme trustees had to stand, as did the determination on the trustees under Regulation 49 of the Income Tax (Employments) Regulation 1993 in respect of the basic rate tax deductible from the same payments.
The appeal failed.
(David John Venables and The Trustees of the Fussell Pension Scheme (SpC 265).)
Business assets and security for underwriting
Captain Patrick Boteler Drury-Lowe was a Lloyd's underwriter who died in 1993. His underwriting business was supported by a personal reserve of shares worth £78,627 at his death and a number of bank guarantees totalling £100,000. In return for the guarantees the bank had, as security, legal charge over a freehold property known as the Denby Disposal Point.
The issue before the Commissioner was whether the property itself formed a business asset. Sections 104(1), 105(1)(a) and 110, Inheritance Tax Act 1984 were the relevant statutory provisions. The conclusion reached will be of widespread interest for personal Names at Lloyd's.
The Revenue contended that the asset was not a business one, as Lloyd's would not have been aware of the identity of the security provided to the bank.
The Commissioner, however, said that the words 'the net value of a business is the value of the assets used in the business' in section 110(b) were crucial. Banks were businesses and did not do anything for nothing. Furthermore, Lloyd's would have been aware that the bank guarantee would have had to be secured by something. The deceased could only obtain a bank guarantee by providing security, and if he had not obtained the guarantee his business would have been affected detrimentally.
The asset did constitute a business asset and the appeals therefore succeeded.
(Michael Anthony Basil Mallender, Richard Butler-Adams, Joshua Christopher Rowley (as executors of the will of Captain Patrick John Boteler Drury-Lowe deceased) (SpC 264).)
Home interest
In 1953, the testator made a will in which he appointed his sons, Alan and Eric to be his executors and trustees. He gave all his estate to his trustees, and directed that the house should only be sold when his three children stopped living in it. He died in 1957, his daughter died in 1974 and his son, Alan died in 1997, having lived in the house since 1932. Eric was Alan's personal representative.
The issue before the Commissioner was whether Alan was, at the date of his death, beneficially entitled to an interest in possession in the house within the meaning of section 49(1), Inheritance Tax Act 1984 and, if so, whether that interest subsisted in only one half of the house within the meaning of section 50(5).
The appellant, Eric Woodhall, argued that at the date of death, Alan was not entitled to an interest in possession in the house. According to the will, the trustees had a discretion as to whom should occupy the house. The decision in Pearson and others v Commissioners of Inland Revenue [1981] AC 753 provided authority for the view that an interest in possession was one which gave a present right to present enjoyment, and there was no such right if the trustees had a discretion whether to confer the interest or not. Alan therefore did not have the right to occupy the property. The postponement of the sale was for administration purposes.
Alternatively, if Alan did have an interest in possession, then it could be no greater than that of Eric, and so should be limited to one half.
The Revenue argued that an interest in possession existed if a person had a present right to present enjoyment. The will did not give the trustees the power to choose which of the children should live in the house, each having the power to require the trustees to permit them to occupy the house.
The Special Commissioner said that the will was worded in a way that did not give the trustees dispositive power to decide who should occupy the house, rather it gave them administrative powers. At the date of Alan's death, both he and Eric had the right to claim to occupy the house jointly with the other. The trustees had no discretion as to which of them should live there. Thus, they both had an interest in possession.
The appeal was therefore allowed in part, i.e., Alan was at the date of his death entitled to an interest in possession in the house, and that interest was limited to one half.
(Eric Woodhall (the personal representative of Alan Woodhall deceased) (SpC 261).)