Plucked Goosetag:,2007-09-18:/62007-09-18T20:48:04Z... a blog about UK personal taxesMovable Type Publishing Platform 4.0Budget 2007 - agricultural buildings allowancetag:www.pluckedgoose.com,2007://6.562007-03-28T20:40:10Z2007-09-18T20:48:04Zthe Editor For capital expenditure to qualify, it must be expenditure incurred on the construction of an agricultural building, for the purposes of husbandry on the land.
In addition, the 'relevant interest' should not have been sold, or if it has been sold, it has been sold only after the first use of the building. Generally speaking, the 'relevant interest' is the freehold or leasehold to which the person incurring the expenditure was entitled.
'Husbandry' includes any method of intensive rearing of livestock or fish on a commercial basis for the production of food for human consumption, and the cultivation of short rotation coppice.
Unlike industrial buildings allowance (IBA), there are no provisions for restricting allowances if the building is not in agricultural use at the end of an accounting period. However, if the first use of an agricultural building is for non-agricultural purposes, no allowances are to be given. Any allowances already given are clawed back.
Like IBA, relief is given at 4 per cent per year on a straight-line basis, with the result that no relief is given after the building has passed its 25th year.
Balancing adjustments
Budget 2007 provides for the phasing out of ABAs with effect from 2009-10. However, in order to ease the way to its abolition, 'balancing adjustments' are withdrawn in respect of any contracts entered into for the disposal of agricultural buildings on or after 21 March 2007.
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For ABA, the default position is that the seller claims the allowance in the final year, but only in proportion to the length of time he owned the building in that year. So if he sold the building in the ninth month of his accounting period, his ABA for the final period will be:
'4 per cent of qualifying expenditure on the building x 9/12'.
The buyer is entitled to the remaining 3/12 of the allowance. However, if the seller and buyer agree, they can elect jointly for a balancing adjustment to be made. In order to work out whether a balancing allowance or charge has arisen, one must have recourse to the 'residue of qualifying expenditure' (RQE). The RQE is expressed in the following formula:
QE +B - A
where
QE is the qualifying expenditure; B is the total amount of any charges that have been made in respect of that expenditure, and A is the total amount of any allowances that have been given in respect of that expenditure.
Let us take the example of a farmer who incurred qualifying expenditure of £100,000 on the construction of a barn in the year ending 31 December 2005, and who has just sold the building for (a) £100,000 and (b) £50,000.
As he would have claimed ABA for both the year ending 31 December 2005 and 31 December 2006, he would have a RQE of £92,000 (ie £100,000 x 4 per cent in two years).
In scenario (a) above, the proceeds (ie £100,000) are greater than the RQE (£92,000). It means that no allowances should have been given, and all allowances given are therefore clawed back, in the form of a 'balancing charge' on the seller. The balancing charge is equal to the amount by which the proceeds exceed the RQE, ie £100,000 - £92,000 = £8,000.
In scenario (b) above, the proceeds (£50,000) are less than the RQE (£92,000). This means that the farmer has not yet received enough to compensate for the qualifying expenditure he incurred. A 'balancing allowance' will therefore arise, equal to the amount by which the RQE (£92,000) exceeds the proceeds(£50,000), ie £42,000, and the seller can deduct this in his tax computation.
In doing the calculations, if proceeds exceed cost, you must restrict them to cost.
And what happens to the buyer? He takes over the RQE and spreads it over the remaining tax life of the building, claiming the allowances that way.
The changes announced in Budget 2007 will mean that for contracts entered into on or after 21 March 2007, the above calculations will no longer apply. Instead, the 'default' method must be used in all cases, the seller claiming a time-apportioned allowance, and the buyer claiming the rest. This is bad news for sellers who would otherwise have been entitled to balancing allowances.
One more thing: the Budget rules only mention 'contracts'. What happens in the case of deemed disposals, eg where a building is destroyed or demolished? I expect to see some legislative provision for that, setting in such cases the date of destruction or demolition as the relevant date on which balancing adjustments will cease.
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Budget 2007 - industrial buildings allowancetag:www.pluckedgoose.com,2007://6.552007-03-22T20:33:58Z2007-09-18T20:39:53ZThe Chancellor announced in the Budget on 21 March 2007 that both industrial and agricultural buildings allowances are to be phased out (pdf) in the coming years. They will be replaced by another reliefs package. In order to ensure smooth...the Editor
phased out (pdf) in the coming years. They will be replaced by another reliefs package. In order to ensure smooth transition to the new system, 'balancing adjustments' will not be permitted in respect of contracts entered into on or after 21 March 2007.
For the rest of this article, I will focus on the operation of the industrial buildings allowance.
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Industrial buildings
The allowance is available for construction costs of 'qualifying buildings' used in 'qualifying trades'. In very broad terms, the relief is available where buildings are used in industrial purposes, such as manufacturing processes. See the Capital Allowances Act 2001 section 274 for more details.
The relief is given to the person with the 'relevant interest' in the building, normally the owner of the freehold. A lessee may hold a 'relevant interest' if he incurred the expenditure at the time he held the lease. However, in certain circumstances where a 'long lease' (ie one with a term greater than 50 years) is granted, both lessee and lessor may make a joint election with the effect that the lessee (and not the lessor) becomes entitled to claim the allowance.
The construction costs that are eligible for relief (ie the 'qualifying expenditure') include costs incurred in preparing land for building. However, the purchase price of the land does not qualify. This is taken into account when the land is sold, so there is no need to give relief here. Ineligible expenditure will also qualify under the de minimis rule, if the total such cost is less than 25 per cent of the total construction cost.
The relief is given as a 4 per cent writing down allowance, which operates on a straight line basis. The result is that, if the building has been in industrial use throughout, at the end of 25 years, there should be no more allowances to claim.
To acertain whether a building qualifies for the allowance for any tax year, look at the last day of the accounting period of the trade in which the business is used. If it was in industrial use on that day, it qualifies. If not, it doesn't. Even if the building is not in use, a notional 4 per cent allowance is deducted, in other words, you pretend as if there was an allowance. If the building was not in use (whether industrial or non-industrial) on the last day of the accounting period, you must look back to decide 'when the building was last in use, was it in industrial use or not?'. If it was, then you assign it as being in industrial use, and deduct the 4 per cent allowance. If it wasn't, you assign it as not being in industrial use, and deduct the 4 per cent, but only notionally.
Balancing adjustments
Suppose you decide to sell the building before the 25 year period is up?
First, you cannot claim a 4 per cent reduction in the tax year in which the building is sold.
Second, at the point you come to sell the building, you will have a brought forward 'written down value', which is what the building should be worth, after taking into account both real and notional deductions.
Third, you need to do a 'balancing adjustment'. The way this works is that you look at the proceeds of sale. If the proceeds of sale are greater than the cost of the building, ie you make a profit, then it means that the allowance should not have been given in the first place.
The allowance is meant to shield you from the reducing value of the building, so if you sold at a profit, then it means that there was no need for the allowances. You will have to repay all the allowances you claimed over the years. This is called a 'balancing charge'.
If, however, you sold the building at a loss, you need to check whether you have claimed all the allowances you should have, or even whether you had claimed more than you should.
The first question to ask is, was the business in industrial use for the whole period in which you owned it? If the answer is yes, then deduct the amount you received on the sale from the written down value of the business. If you end up with a positive figure, you have a balancing allowance, ie more tax relief. If you end up with a negative figure, it means you have claimed more allowances than you should have, and you need to pay the excess to HMRC.
If the building was not in industrial use the whole time, you need to do an apportionment calculation to find the proportion of the cost that related to industrial use. Then deduct from the 'adjusted net cost' any allowances you have already taken. You will have a balancing allowance or charge, depending on whether you end up with a positive or negative figure.
And what about the purchaser of the building? He is also entitled to allowances if the building is still in the 25 year period. However, he does not just pick up from where you left off, and go on claiming a 4 per cent allowance per tax year. His annual allowance is worked out as follows:
{Residue after sale/Building's remaining tax life in months} x 12
The 'residue after sale' is the tax written down value of the building, less the balancing allowance, or plus the balancing charge, as appropriate. If the residue after sale is greater than the price the purchaser paid for the building, it is restricted to that price.
Effect of changes in the Budget
The effect of the changes announced in the Budget is that for contracts of sale of an industrial building made on or after 21 March 2007, there will be no more balancing adjustments. There will be no calculations to see if too little or excess allowances have been claimed.
And as for the purchaser, rather than using the formula above, he just takes over the written down value of the building, and claims a 4 per cent deduction every tax year, as the original owner would have done.
For people making contracts to sell after that date, good news for those whose buildings have been in non-industrial use, as they will escape the balancing charge. However, not very good news for those who would have been entitled to a balancing allowance, as they will not now be getting it.
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Death estate - disallowed debtstag:www.pluckedgoose.com,2007://6.542007-03-18T20:27:46Z2007-09-18T20:33:36ZIn ascertaining the value of the death estate for the purposes of inheritance tax (IHT), any liabilities or debts owed by the deceased at the date of death must be deducted.Except. Yes, except. Many years ago, my personal tax lecturer...the Editor Except. Yes, except. Many years ago, my personal tax lecturer taught me something very true: there is no such thing as a straightforward tax rule. There is always an exception or three. Remember that, and you won't go wrong. Always look for the 'except'.
Back to the topic: you can deduct from the death estate debts or liabilities owed by the deceased at the time of his death. So if the deceased had a death estate of, say, £200,000, and was owing £5,000 in bills, etc, the death estate is £200,000 - £5,000 = £195,000. However, this article is about a specific anti-avoidance measure aimed at catching out people who try to reduce the IHT payable by creating artificial debts, which can then be deducted from their death estate.
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Mr A owns several properties, including a house with a market value of £250,000. He gives away the house to his son, Mr B. (This is a potentially exempt transfer (PET), so that if Mr A survives seven years from the making of the gift, there is no IHT payable.) Mr B then mortgages the property for £250,000 which he lends to Mr A.
Mr A dies eight years later, without having repaid the loan. The PET becomes fully exempt, as Mr A survived seven years from when he made the gift. Mr A's death estate is worth £850,000 at the date of his death. His personal representatives wish to deduct the outstanding loan of £250,000, thereby reducing the death estate to £600,000.
Can they? The Finance Act 1986 section 103 says no. According to that section, there should be no deduction for a debt where the consideration for the debt consisted of 'property derived from the deceased'.
The £250,000 lent to Mr A 'derived from' the land Mr A had given to Mr B, as it was through a mortgage that the sum was raised.
Even if the consideration was not so derived, the rule still applies if the consideration was supplied by anyone who was at any time entitled to any property derived from the deceased, or amongst whose resources such property had been included at any time. This provision would catch a scenario like that set out above, except where the money lent to Mr A was not derived from the mortgaged property, but from, say, Mr B's own investments.
And it is no use Mr A getting, say, his wife, to transfer the property to Mr B instead. The rules catch not only dispositions made by the deceased, but those made by him in concert with other people. I believe it will also catch a situation where he transferred the house to his wife, who then advanced some other kind of property, eg shares, to Mr B, who then loaned money to Mr A.
Where the transactions are caught by these anti-avoidance provisions, the debt is not deducted from the value of the death estate. In addition, if Mr A had made any repayments to Mr B in his lifetime, these are treated as PETs, and would only escape the IHT net if they were made more than seven years before Mr A's death. Obviously, tapering relief applies to PETs made more than three years before the death of the donor.
A double charge can arise if Mr A died less than seven years from making the gift to Mr B, and in addition to that, deduction for the debt was disallowed. In such a case, double charges relief is available.
The above anti-avoidance provisions do not apply where the transfer of property by the deceased (in our example, the transfer from Mr A to Mr B) was not a transfer of value, and was not part of associated operations which included any element of bounty, whether direct or indirect. In addition, the provisions only apply to debts incurred on or after 18 March 1986.
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Energy-saving items - deductions by landlordstag:www.pluckedgoose.com,2007://6.532007-03-16T20:25:06Z2007-09-18T20:27:25ZGood news for UK landlords of residential property. The Treasury have added to the list of energy-saving items in respect of which they may claim deductions. At the moment, such landlords may deduct expenditure incurred on the acquisition and installation...the Editor With effect from 6 April 2007, they may also deduct expenditure incurred on acquiring and installing floor insulation. The cap on the deduction is also being increased, with effect from that date. In place of the current restriction of the deduction to £1,500 per building, there is a new restriction of £1,500 per property.
So if a landlord owns several flats in a block, he may, from 6 April 2007, claim a deduction of up to £1,500 per flat. Before that date, he would have had to restrict himself to a total deduction of £1,500, irrespective of how many flats he had in the building, and how much expenditure he had incurred on each one.
The Government hopes that these incentives will encourage landlords to consider energy-efficient ways of developing their properties. Tasty carrots. Infinitely preferable to a big stick.
Reference: Energy-Saving Items Regulations 2007, SI 2007/831 (pdf).
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Rollover relief - shares in a personal companytag:www.pluckedgoose.com,2007://6.522007-03-12T20:18:20Z2007-09-18T20:24:35ZI have been reading an interesting case that was recently referred to the Special Commissioner.A trade was carried on by a company (which we shall call 2SPD), which had issued share capital of 60,000 ordinary shares of 1p each. Of...the Editor A trade was carried on by a company (which we shall call 2SPD), which had issued share capital of 60,000 ordinary shares of 1p each. Of that number, 59,932 (ie 99.87%) were held by a holding company (BHP). Of the remaining 68 shares, the taxpayer and his wife held 53, and the balance was held by a third party.
All of the shares in BHP were held by the taxpayer and his wife, the taxpayer holding a little over 50 per cent.The taxpayer claimed that his wife exercised her voting rights in accordance with his wishes, as he was in charge of running the business.
The taxpayer and his wife owned some farms and feed mills which they rented to 2SPD at normal commercial rates. They sold the assets and wished to claim rollover relief in respect of replacement assets.
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"personal company", in relation to an individual, means any company the voting rights in which are exercisable, as to not less than 5 per cent by that individual:".
HMRC claimed that as the taxpayer did not hold up to 5 per cent in 2SPD, the company was not his personal company, and rollover relief would not be given. The taxpayer contended that while he did not directly hold 5 per cent of shared in 2SPD, he controlled (both directly as to his holding, and indirectly through his wife) all the shares in BHL, which in turn held 99.87% of the shares in 2SPD. He therefore argued that he controlled all the votes in 2SPD, through his control of all the votes in its holding company, BHL.
The Special Commissioner disagreed. It was not merely a question of fact, such that voting rights were sufficient, regardless of ownership. It was a question of fact and law. The concept of ownership of the shares was essential for the scheme of rollover relief. To extend entitlement to any person (here the taxpayer) who could exercise voting rights on behalf of another person (ie BHL) would be too wide a construction. He therefore determined that the entitlement did not so extend.
Reference: Boparan Holdings Limited.
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Official interest rate increasedtag:www.pluckedgoose.com,2007://6.512007-03-09T21:14:44Z2007-09-18T20:23:26ZThe official interest rate has been increased from 5 per cent to 6.25 per cent.The rate is used to determine whether a loan to an employee is a ''taxable cheap loan", and therefore subject to income tax.If an employer lends...the Editor The rate is used to determine whether a loan to an employee is a ''taxable cheap loan", and therefore subject to income tax.
If an employer lends money to an employee at no interest, or at an interest rate lower than the official rate, the cheap loan is a taxable benefit. The tax charge applies to the "cash equivalent" of the benefit. Generally, for any tax year, the cash equivalent is the difference between the interest on the loan at the official rate, and the interest paid on the loan.
There are two methods of calculating the cash equivalent. The "default" method uses the average balance of the loan for the tax year. Under the alternative method, interest is calculated on a day-to-day basis. The taxpayer may use whichever method favours him. The default method applies unless the taxpayer elects for the alternative. Where the default method gives an unlikely result, HMRC may insist on the alternative method.
The new rate takes effect from 6 April 2007. The previous rate (5 per cent) has been in place since January 2002. The increase means that there will be higher tax bills for certain employees who have taxable cheap loans with their employers. It also affects other cases where, even though an employee has not taken a loan, he has been deemed by legislation to have done so. An example of such a situation is where an employee is deemed to have taken out a "notional loan" because he has acquired employment-related securities for less than market value.
References: Taxes (Interest Rate) (Amendment) Regulations 2007, S.I. 2007/684; Income Tax (Earnings and Pensions) Act 2003 Part 3, Chapter 7.
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Sideways loss relief - proposed restrictionstag:www.pluckedgoose.com,2007://6.502007-03-04T21:07:32Z2007-09-18T20:13:43ZHMRC have announced anti-avoidance measures to restrict the use of sideways loss relief by "non-active partners".The term "non-active partners" refers to limited partners, and partners who spend an average of less than 10 hours a week personally engaged in the...the Editor
announced anti-avoidance measures to restrict the use of sideways loss relief by "non-active partners".
The term "non-active partners" refers to limited partners, and partners who spend an average of less than 10 hours a week personally engaged in the partnership's trading activities.
The measures will be contained in the next Finance Bill. Currently, the loss relief available to such partners is based on the amount of capital they have contributed to the partnership. The Finance Bill will provide that, in calculating the amount of relief available, capital contributed by a non-active partner on or after 2 March 2007 (the date of the announcement) will be disregarded, if the main reason, or one of the main reasons, for contributing the capital was to claim loss relief.
The Finance Bill will also introduce an annual limit to the amount of sideways loss relief which a non-active partner may claim. A non-active partner who sustains trading losses on or after 2 March 2007 is restricted to loss relief of £25,000 in respect of all the trading losses for all the partnerships in which he was a non-active partner for the tax year. Of course, if his losses amount to less than £25,000, his claim is restricted to the lower amount. Where sideways loss relief is not available, the losses are carried forward for offset against the the non-active partner's future partnership profits. This measure will scupper tax avoidance schemes in which taxpayers make significant contributions to certain partnerships, thereby generating losses against which they offset their other income or capital gains.
Before the introduction of the latest film tax regime by the 2006 Finance Act, film partnerships were prime candidates for such investment. Certain environmental projects are also good for this kind of investment; partnerships which create carbon credits which they intend to trade for profits tend to suffer losses in the early years, and as such, provide a good opportunity for an investor to claim loss relief. However, once the new loss relief rules come into effect, these too will lose their appeal.
UPDATE (9 March 2007): Following protestations by investors and the film industry that these proposals would damage the British film industry, HMRC backed down and made a few changes to its proposals. The above restrictions will not now apply to 'sale and leaseback' deferral arrangements (see example) made in respect of qualifying 'British' films.
NB. The new films tax regime introduced by the Finance Act of 2006 takes effect for films which commence principal photography on or after 1 January 2007. The rules we have been discussing above apply under the old regime, as they deal with films which commenced principal photography before 1 January 2007. Films which commence principal photography on or after that date are dealt with under another regime, and are outside the scope of the rules above. ]]>
Landowners liable for repairs to village churchtag:www.pluckedgoose.com,2007://6.492007-02-09T21:00:40Z2007-09-18T20:14:22ZA landowning couple have discovered that they are liable for repairs to the local parish church.The couple had bought former glebe land. Under medieval canon law, the owners of such land were lay rectors of the parish, and were liable...the Editor
liable for repairs to the local parish church.
The couple had bought former glebe land. Under medieval canon law, the owners of such land were lay rectors of the parish, and were liable for the cost of repairs to the chancel of the parish church. There was a reciprocal right to tithes, but that was abolished in 1936. The couple were presented with a bill for repairs in 2000, which they refused to pay.
The case has only now been decided by the House of Lords, by which time the costs had climbed almost to £200,000.
What does this have to do with tax? Well, when I read the news report of the House of Lords' decision, I remembered coming across this very case a few years ago, but in the context of tax and human rights. I did a little digging, and sure enough, there it was: Aston Cantlow and Wilmcote with Billesley Parochial Church Council v Wallbank and another [2001] EWCA Civ 713. This was at the Court of Appeal. The couple had argued that the liability for payment was contrary to the Human Right Act 1998, specifically, their right to peaceful enjoyment of their possessions. In addition, section 6 of the Human Rights Act 1998 provides that a public body must not act in a way that is incompatible with a right conferred by the European Convention of Human Rights.
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The Court also examined case law. Conclusion? The PCC was a 'public authority'. In the words of Sir Andrew Morritt, the PCC was:
"... an authority in the sense that it possesses powers which private individuals do not possess to determine how others should act. Thus, in particular, its notice to repair has statutory force. It is public in the sense that it is created and empowered by law; that it forms part of the church by law established; and that its functions include the enforcement through the courts of a common law liability to maintain its chancels resting upon persons who need not be members of the church.".
The Court also considered in detail the right to peaceful enjoyment of one's possessions, as set out in Article 1 of the First Protocol to the European Convention of Human Rights. That right also prevents anyone from being deprived of his possessions (including money) except in the public interest, and subject to conditions provided by law, including international law.
However, the right to peaceful enjoyment of one's possessions does not prevent the State from enforcing any laws deemed necessary to control the use of the property in the general interest, or for the payment of taxes. So even if the Court of Appeal were to concur that the liability ran counter to the right to peaceful enjoyment, one of the issues was whether that right was overriden by the exceptions outlined above.
In deciding this, the Court first considered whether the levy was a form of taxation. It concluded that it was a tax on the ownership of land. As to whether the tax was in the public interest, the Court was of the view that a levy for the upkeep of England's church buildings was in the public interest.
The Court then considered whether the tax was levied in conditions provided for by law. As a starting point, Sir Andrew stated that that the legitimate aim of taxation in the public interest must be pursued by means which are not completely arbitrary or out of all proportion to their purpose. This test was then applied to the facts of the case. The Court concluded that the liability for the tax in this case was arbitrary. It was arbitrary in its incidence, falling as it did on land which was now no longer connected to the church in any way, and which was no different from any other freehild land. It was also arbitrary because the liability could arise at any time and in any amount. The taxpayers' appeal was allowed.
That was a few years ago. Not content with the Court of Appeal's decision, the PCC appealed. It is that appeal which has now been allowed by the House of Lords. The couple are now facing a bill for repairs of almost £200,000 and legal fees of an approximate amount. I am interested in the reasons for which the House of Lords overturned the judgement of the Court of Appeal. I agreed wholeheartedly with the Court of Appeal's reasoning, and it would be interesting to see what contrary reasoning the House of Lords employed. I will be writing another article once I have read the case report. ]]>
Recovery of overpaid taxtag:www.pluckedgoose.com,2007://6.482007-02-03T20:48:35Z2007-09-18T20:00:21ZInteresting news in the press about a businessman who has had to forfeit a tax overpayment of £846,000. According to the Daily Telegraph, this was because he had tried to claim it after the one year deadline for amending tax...the Editor
Daily Telegraph, this was because he had tried to claim it after the one year deadline for amending tax returns had expired.
True, but that is not the whole story. In fact, his appeal to the High Court did not even hinge on that point. His lawyers knew there was no hope of the one year deadline being disturbed, whatever the facts of the case, so they did not base their arguments on that. That issue did not even arise in the case, save for a few passing comments by the judge, Sir Andrew Morritt. He signposted the futility of bringing an action on that point. The deadline had passed, and that was that.
The case instead centred on section 33 of the Taxes Management Act 1970. In broad terms, that section provides for repayment where tax is overpaid as a result of error or mistake. However, sub-section (2A) of that section denies relief if the erroneous tax was computed on the basis of practice generally prevailing at the time the tax return was made.
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He paid the income tax due on the exercise of the option. He later sold some of the shares. In accordance with prevailing practice, he computed the gain by deducting the base cost attributable to the shares sold from the proceeds of sale. The sale took place in the 1999/00 tax year.
However, in the 2003 case of Mansworth v Jelley, the Court of Appeal held that this was the wrong way the calculate the gain. The taxpayer was entitled to deduct the base cost, but he was also entitled to deduct the amount on which those shares had been subject to income tax. The effect of this was that the chargeable gain was less than it would have been under the previous method. In Mr Monro's case, it meant that he had paid £846,000 more than he should have.
Following Mansworth v Jelley, many taxpayers amended their returns in order to claim back any capital gains tax overpaid. Mr Monro's accountants tried to amend his 1999/00 tax return, but the Revenue (as it then was) refused on the basis that the one year period within which a return could be amended, had elapsed. He subsequently brought an action to recover the overpaid tax as having being paid under a mistake of law, or as tax paid pursuant to an unlawful demand.
On the mistake of law claim, the taxpayer acknowledged that the overpaid tax could not be reclaimed under section 33, because it was precluded by the proviso in sub-section (2A) relating to practice generally prevailing at the time. The tax had been calculated in the pre-Mansworth v Jelley days, so even though the calculation was wrong, it was done according to the prevailing practice at the time. However, he argued that the common law restitutionary claim for recovery of money paid under mistake should not be precluded by the existence of the Taxes Management Act. However, Sir Andrew Morritt, while expressing sympathy for the taxpayer, disagreed with his argument. He did not agree that the proviso in sub-section (2A) could be got around simply by recognising the common law remedy for restitution. This, in his opinion, would be inconsistent with section 33 overall.
The taxpayer also argued that the tax could be recovered as tax paid pursuant to an unlawful demand. He cited the case of Woolwich, which approved the recoverability at common law of money paid to a public authority, following an ultra vires demand. However, Sir Andrew Morritt held that section 33 of the Taxes Management Act 1970 applied to all cases of overpaid capital gains tax. If overpaid capital gains tax was to be recovered, it must be recovered under the terms of section 33. This meant that it must therefore be subject to the proviso in sub-section (2A) about the prevailing practice at the time. There was no remedy outside the terms of section 33, and therefore, the taxpayer's claim would fail.
The idea that there is no remedy for overpaid tax, other than within the terms of section 33, is a very interesting one. It would have been exciting to see that challenged in the Court of Appeal. Unfortunately for Mr Monro, leave to appeal was not granted. Sir Andrew's opinion is basically that such matters are the proper business of Parliament.
So there we are; the law is the law, and quite severe it is in this instance. Will Parliament take up Sir Andrew's challenge? Somehow I doubt it. I would be very surprised to see any such change in the forthcoming Finance Bill.
Post script. The Finance Act 2003 later superseded Mansworth v Jelley, with retrospective effect from 9 April 2003, and reinstated the pre-Mansworth position. The effect is that the more generous method of computation now applies in very limited circumstances.
(Case name: Monro v Revenue and Customs Commissioners)