ICAS has submitted a Budget representation requesting that s 248A should be amended to remove the disadvantageous treatment of Scottish partnerships which currently arises from differences between Scottish and English law, and HMRC’s approach to interpreting the section.
Section 248A (previously ESC D26) allows a roll-over style relief for CGT where joint owners of land exchange their interests so that each owner is left owning one or more parcels of land individually. For the exchange of joint interests to apply, the land must initially be jointly held. HMRC has rejected a non-statutory clearance application relating to the availability of relief under s 248A, where the land was held in a Scottish partnership. Clearance was apparently refused on the grounds that a Scottish partnership is a legal person and therefore the land was not ‘held jointly’ under the conditions of s 248A.
Where Scottish and English non-tax law differ, it raises an interesting question. How should tax statutes applicable to the whole of the UK be applied? This is not new - it featured in cases in the nineteenth century - but it remains an important question for Scottish taxpayers. The principle derived from the case law is that the position of Scottish taxpayers under tax legislation applying to the whole of the UK, should not be prejudiced by differences between Scottish and English Law. ICAS members reported experience of this being accepted by HMRC in the past.
This 1860 case ((1860) 3 Macqueen 659) related to the amount of succession duty payable under a Victorian tax statute. The courts had to determine whether duty was payable at 3% or 1%. This hinged on whether the ‘predecessor’ (for the purposes of the tax statute) was Lord Saltoun’s uncle (also Lord Saltoun) or his grandmother, the Dowager Lady Saltoun. Relying on Scottish law relating to succession to determine the ‘predecessor’, the advocate-general argued that duty at 3% was due. However, the House of Lords finally determined that the 1% rate applied.
The judgments emphasised that the legislature would have intended that an act applicable to the whole of the UK should tax the subjects of each kingdom equally in the same circumstances, in spite of differences between Scottish and English law.
HMRC’s manual: PIM131700
In the context of Scottish partnerships, HMRC’s Business Income Manual (at BIM82035 – now moved to its Partnership Manual at PM131700) appeared to confirm that HMRC did accept that the position of Scottish taxpayers under tax legislation applying to the whole of the UK, should not be prejudiced by differences between Scottish and English Law.
PIM131700 states:
'Unlike its English, Welsh or Northern Irish counterpart, a Scottish partnership is a legal person. This has very few consequences for tax purposes. Where the differing legal systems would produce different results as between Scotland and the rest of the United Kingdom, specific legislation has been enacted to preserve equality of treatment; for example assessment of partnership profits (see PM141000) and capital gains (see CG27000). Where the tax legislation itself would produce different results, the courts have directed that:
"…it is desirable to adopt a construction of statutory words which avoids differences of interpretation of a technical character such as are calculated to produce inequalities in taxation as between citizens of the two countries."
(Viscount Simons at page 244 in Rex v General Commissioners of Income Tax for The City of London (ex parte Gibbs and Others) (1940) 24 TC 221).'
In his judgment in the Gibbs case, Viscount Simons went on to refer to the Saltoun case outlined above.
It was unclear why, in rejecting the clearance, HMRC had not applied the principle derived from Saltoun. ICAS therefore asked HMRC to clarify whether it continued to accept the principle and if not, why it had changed its policy.
HMRC’s reply noted that the Gibbs case, quoted in its guidance, highlighted the desirability of avoiding a technical construction which produces inequalities in taxation as between citizens of the two countries. HMRC would therefore consider this principle where such a technical interpretation of legislation could be avoided.
However, the reply went on to say that where the difference in Scottish and English law is substantive it may mean that this is not possible. In HMRC’s view the application of TCGA 1992 s 248A is an example of this. As a Scottish partnership is a separate legal person, and there is nothing in the legislation which treats it as anything else for the purposes of s 248A, HMRC does not consider there to be a technical construction of s 248A which would enable the relief to be claimed on land held by a Scottish partnership.
The current wording of s248A is flawed; it appears that when the legislation was drafted no consideration was given to Scottish law. This, combined with HMRC’s view that the Saltoun principle cannot be applied in s 248A cases, causes practical problems, additional costs and unfairness. Scottish partnerships have to try to work round the flawed legislation to obtain the relief they should be entitled to under s 248A. We assume that there was no policy intention to disadvantage Scottish taxpayers and to treat Scottish partnerships less favourably than English ones.
ICAS has proposed the insertion of an additional clause into s 248A to provide that, for the purposes of that section, property owned by a Scottish partnership should be treated as jointly held. Alternatively, a clause could be inserted to state that the provisions of TCGA 1992 ss 59/59A should be applied to s 248A for Scottish partnerships, i.e. the partnership should be looked through, so that the property would be treated as jointly held by the partners.
ICAS has submitted a Budget representation requesting that s 248A should be amended to remove the disadvantageous treatment of Scottish partnerships which currently arises from differences between Scottish and English law, and HMRC’s approach to interpreting the section.
Section 248A (previously ESC D26) allows a roll-over style relief for CGT where joint owners of land exchange their interests so that each owner is left owning one or more parcels of land individually. For the exchange of joint interests to apply, the land must initially be jointly held. HMRC has rejected a non-statutory clearance application relating to the availability of relief under s 248A, where the land was held in a Scottish partnership. Clearance was apparently refused on the grounds that a Scottish partnership is a legal person and therefore the land was not ‘held jointly’ under the conditions of s 248A.
Where Scottish and English non-tax law differ, it raises an interesting question. How should tax statutes applicable to the whole of the UK be applied? This is not new - it featured in cases in the nineteenth century - but it remains an important question for Scottish taxpayers. The principle derived from the case law is that the position of Scottish taxpayers under tax legislation applying to the whole of the UK, should not be prejudiced by differences between Scottish and English Law. ICAS members reported experience of this being accepted by HMRC in the past.
This 1860 case ((1860) 3 Macqueen 659) related to the amount of succession duty payable under a Victorian tax statute. The courts had to determine whether duty was payable at 3% or 1%. This hinged on whether the ‘predecessor’ (for the purposes of the tax statute) was Lord Saltoun’s uncle (also Lord Saltoun) or his grandmother, the Dowager Lady Saltoun. Relying on Scottish law relating to succession to determine the ‘predecessor’, the advocate-general argued that duty at 3% was due. However, the House of Lords finally determined that the 1% rate applied.
The judgments emphasised that the legislature would have intended that an act applicable to the whole of the UK should tax the subjects of each kingdom equally in the same circumstances, in spite of differences between Scottish and English law.
HMRC’s manual: PIM131700
In the context of Scottish partnerships, HMRC’s Business Income Manual (at BIM82035 – now moved to its Partnership Manual at PM131700) appeared to confirm that HMRC did accept that the position of Scottish taxpayers under tax legislation applying to the whole of the UK, should not be prejudiced by differences between Scottish and English Law.
PIM131700 states:
'Unlike its English, Welsh or Northern Irish counterpart, a Scottish partnership is a legal person. This has very few consequences for tax purposes. Where the differing legal systems would produce different results as between Scotland and the rest of the United Kingdom, specific legislation has been enacted to preserve equality of treatment; for example assessment of partnership profits (see PM141000) and capital gains (see CG27000). Where the tax legislation itself would produce different results, the courts have directed that:
"…it is desirable to adopt a construction of statutory words which avoids differences of interpretation of a technical character such as are calculated to produce inequalities in taxation as between citizens of the two countries."
(Viscount Simons at page 244 in Rex v General Commissioners of Income Tax for The City of London (ex parte Gibbs and Others) (1940) 24 TC 221).'
In his judgment in the Gibbs case, Viscount Simons went on to refer to the Saltoun case outlined above.
It was unclear why, in rejecting the clearance, HMRC had not applied the principle derived from Saltoun. ICAS therefore asked HMRC to clarify whether it continued to accept the principle and if not, why it had changed its policy.
HMRC’s reply noted that the Gibbs case, quoted in its guidance, highlighted the desirability of avoiding a technical construction which produces inequalities in taxation as between citizens of the two countries. HMRC would therefore consider this principle where such a technical interpretation of legislation could be avoided.
However, the reply went on to say that where the difference in Scottish and English law is substantive it may mean that this is not possible. In HMRC’s view the application of TCGA 1992 s 248A is an example of this. As a Scottish partnership is a separate legal person, and there is nothing in the legislation which treats it as anything else for the purposes of s 248A, HMRC does not consider there to be a technical construction of s 248A which would enable the relief to be claimed on land held by a Scottish partnership.
The current wording of s248A is flawed; it appears that when the legislation was drafted no consideration was given to Scottish law. This, combined with HMRC’s view that the Saltoun principle cannot be applied in s 248A cases, causes practical problems, additional costs and unfairness. Scottish partnerships have to try to work round the flawed legislation to obtain the relief they should be entitled to under s 248A. We assume that there was no policy intention to disadvantage Scottish taxpayers and to treat Scottish partnerships less favourably than English ones.
ICAS has proposed the insertion of an additional clause into s 248A to provide that, for the purposes of that section, property owned by a Scottish partnership should be treated as jointly held. Alternatively, a clause could be inserted to state that the provisions of TCGA 1992 ss 59/59A should be applied to s 248A for Scottish partnerships, i.e. the partnership should be looked through, so that the property would be treated as jointly held by the partners.
