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Tax scheme succeeds
Tax scheme succeeds
At the beginning of April 1987 most of the land at Bridge Farm was owned by the taxpayer's family as tenants in common in undivided shares. The legal title was vested in the taxpayer and his brother as trustees for sale for themselves and the taxpayer's wife. On 16 April 1987, a contract was entered into for part of the land to be sold to C Ltd. On 1 May 1987, the remainder of the land was given to the taxpayer and his wife, which they held as trustees for sale for themselves as beneficial joint tenants and which became subject to the contract for sale to C Ltd.
On 11 December 1987, C Ltd assigned its interest in the contract to CE Ltd. In 1988, the taxpayer and his wife created two settlements in Bermuda, with the same Bermudan company as sole trustee of each settlement. In 1989-90, each assigned to the Bermudan trustee half of the one quarter undivided share to which he or she was beneficially entitled in Bridge Farm.
The contract for sale to C Ltd/CE Ltd was completed in three tranches: November 1990, December 1991 and December 1992. The net proceeds were divided between the taxpayer, his wife, his brother and the two Bermudan settlements.
The Revenue assessed the taxpayer to capital gains tax on the gains computed according to the sale proceeds which belonged to the Bermudan trustee, claiming that the deeming provisions of what is now section 28(1), Taxation of Chargeable Gains Act 1992 (time of disposal under contract) justified this.
The Special Commissioner accepted the Revenue's argument, so the taxpayer appealed to the High Court.
The question before Mr Justice Park was whether the taxpayer was assessable to capital gains tax for 1987-88 on the basis that section 28(1) deemed him and his wife to have made the three disposals in 1987-88, or whether they were actually, or under section 46(1) should be treated as having been made by the Bermudan trustee in 1990-91, 1991-92 and 1992-93. The judge said that the taxpayer and his wife were not deemed to have made any capital gains tax disposal in 1987-88 by virtue of section 28(1) or any other provision. Section 28(1) is purely a timing provision and contains nothing to affect which person actually makes the disposal for capital gains tax purposes. The disposal is made when the contract is completely and by the parties at that stage. Those parties are the ones deemed by the timing provision in section 28(1) to have realised the gain at the time of the contract. The assessment was not justified and the appeal was allowed.
(Jerome v Kelly, Chancery Division, 15 April 2002.)
