News archive

The First-tier Tax Tribunal has allowed a claim for principal private residence relief (PPR) in which a couple bought their mother’s flat subject to her right to continue occupying it.  The tribunal decided this was an interest in settled property, i.e. trust property under s.68 of the Taxation of Chargeable Gains Act 1992.

This is from the case report and outlines the background to this matter:

6. The Flat was purchased by Mr Wagstaff’s mother (“Mrs Barbara Wagstaff”), in
1990. On 6 February 1996 she sold and transferred the Flat to the Appellants for
30 £45,000. The price was based on a valuation report of 14 October 1994. The report
was not before us and we heard no evidence regarding the valuation either at the time
that it was given or in respect of the sale which took place some 15 months later.
HMRC had nevertheless accepted the price as an arm’s length price.

7. The sale was subject to the terms of an agreement of 6 February 1996 (“the
35 Agreement”) between the parties under which Mrs Barbara Wagstaff was entitled to
continue living at the flat at no cost for the remainder of her life or until her
remarriage, subject to payment of £5,000.

8. Mrs Barbara Wagstaff continued to occupy the property until 2005. In August
2005 she had knee replacement surgery, following which she returned to the Flat.
40 Within a week, however, she fell down stairs, seriously injuring the replacement joint, 3
and had to be returned to hospital. She was not released from hospital until
November 2005 when she went to live with the Appellants pending the arrangement
of more suitable long term accommodation. The Flat remained available for her use
with her furniture and belongings in situ until she moved into a new single storey,
5 stair-free home in June 2006. Thereafter the Flat remained empty until it was sold (by
way of an arm’s length third party sale) with her agreement on 16 March 2007.”

The taxpayers submitted a claim under section 225 of TCGA 1992 on the basis that their ownership of the flat was subject to a trust and the flat was settled property which qualified for PPR.   HMRC refused the taxpayers’ claim for PPR.

The full report can be found here. 

Inquiry by the Scottish Parliament’s Economy, Energy and Tourism Committee into Scotland’s Economic Future Post-2014 

Please find following my written evidence.

By way of background I am a partner in and co-founder of Legal Knowledge Scotland, immediate past Convener of the Scottish Borders Chamber of Commerce, a former trustee of Reform Scotland and co-author of its “Fiscal Powers” and “Devo plus” papers.  I have written extensively on the fiscal powers debate and in particular on how we might create a simpler, more efficient and effective Scottish tax system.

I only wish to make three points to this inquiry.

Firstly, if Scotland votes ‘NO’ it will be extremely difficult to persuade Westminster to devolve any let alone substantial powers to the Scottish Parliament.  For evidence of this simply consider what was proposed by the Calman Commission, the reaction to it by the then UK Labour and subsequent coalition governments and what was actually delivered by the Scotland Act 2012.

The chapter I wrote for the recent Hassan/Mitchell book: After Independence titled “The continuing battle for Scottish tax powers” outlines this argument in more detail.   A link to this chapter can be found here.

Secondly, even if you are able to persuade Westminster to devolve even relatively minor powers it will be at least a decade before the Scottish Parliament can make use of these powers.  In addition, it is likely that Westminster and other vested interests will use this time to water down any proposal.  For evidence of this again note the Calman timeline.  A link to an article I wrote on this issue can be found here.

My third point concerns the Scottish Government’s White Paper on independence.  Three of the tax related priorities are:  reduce Air Passenger Duty (APD) by 50%, set a “competitive” corporation tax rate and design a more efficient tax system.

Whilst I have no real issue with these priorities and in particular designing a more efficient Scottish tax system, I do feel that the Scottish Government is not being radical enough.  Personally I would have argued for abolishing two or even three of the minor taxes such as stamp duty on shares, APD and possibly even CGT.

Why am I arguing for this?  If we are serious about creating a simpler, more efficient and effective Scottish tax system we need to start removing some of the clutter.  That is best done by abolition not tinkering.   Does an independent Scotland need over 25 taxes, charges and duties?  Of course not.  Does Scotland need a separate Stamp Office, Registers of Scotland and Companies House?  Of course not.

In addition consider for a moment how an announcement such as this would be perceived throughout Europe and also further afield.  I suspect that the way Scotland is viewed by many may change or at least be reconsidered.

James Aitken, 26 January 2014

The Scottish courts can authorise a solicitor to execute a will on behalf of an adult who lost capacity after expressing his or her testamentary intention.  Appropriate evidence must also be produced to justify such an intervention order.

This is from the judgement:

“The views formed by the Sheriff Principal on the main issues raised by this appeal (heard without a contradictor) may be summarised as follows:-

(i) An intervention order authorising the execution on behalf of a WI person of a will may competently be granted by the court under the Adults with Incapacity Act 2000 in appropriate circumstances.

(ii) The sheriff was correct in thinking that he could not proceed to grant such an intervention order solely by reference to the principles set forth in section 1 of the said Act but that he had to consider also whether the WI adult had capacity to give instructions regarding preparation of a will.

(iii) The sheriff was incorrect in determining the question before him solely (or almost solely) by reference to an oral submission made to him by a mental health officer at the bar of the court.

(iv) In order to justify the granting of an intervention order such as that sought here by the pursuer the court has to be satisfied on appropriate evidence that the WI adult had testamentary capacity when he expressed a testamentary intention which remains the same at the time of granting that order.”

An article on this matter from the Law Society of Scotland journal can be found here.

The full judgement can be found here.

My first tax and fiscal powers blog of the year.

Let’s start with the fiscal powers debate.  I thought it was interesting but not surprising to see that Jim Gallagher has joined the “NO” campaign.  Anyone who was involved with the Calman Commission, which he played an integral part in, knows his views on devolving substantial tax and welfare powers to the Scottish Parliament.  I suspect the ‘NO’ campaign were disappointed that it was his previous comments on Scotland’s European Union membership that received the most publicity and not the fact he has joined the ‘NO’ campaign.  More on this can be found here.

Now to tax powers already held by the Scottish Parliament.

John Swinney has presented his final Budget before the independence referendum.  On business rates he announced: “£77m over two years to further enhance the competitiveness of the Scotland’s business rates regime”.  More on this can be found here and here.  The Scottish Government’s policy of a freeze on Council Tax bills continues to spark debate.  The differing views of the Scottish Government and Scottish Labour can be found here.  One other and not unexpected announcement was that the Scottish Government is ending the “alcohol surcharge”.  More on this can be found here.

Now to the future.  Let’s start with the White Paper.

The Scottish Government’s White Paper can be found here.  The tax proposals can be found on pages 117 to 123.   Three of the tax related priorities are:  reduce Air Passenger Duty (APD) by 50%, set a “competitive” corporation tax rate and design a more efficient tax system.

Whilst I have no real issue with these priorities and in particular designing a more efficient Scottish tax system, I do feel that the Scottish Government is not being radical enough.  Personally I would have argued for abolishing 2 or even 3 of the minor taxes such as stamp duty on shares, APD and possibly even CGT.

Why am I arguing for this?  Firstly, if we are serious about creating a simpler and more efficient Scottish tax system we need to start removing some of the clutter.  That is best done by abolition not tinkering.   Does an independent Scotland need over 25 taxes, charges and duties?  Of course not.  Does Scotland need a separate Stamp Office, Registers of Scotland and Companies House?  Of course not.

Secondly, not only would this free up resources, it would send a clear message.  How Scotland is viewed  on independence is very important.  A clear statement of intent is needed and that should include abolishing a number of taxes.

More on the APD proposal can be found here.

Now to the Revenue Scotland and Tax Powers Bill.  The Bill provides a legal framework for the collection of taxes devolved under the Scotland Act 2012, and gives this responsibility to a new tax authority, Revenue Scotland.  In short, the beginnings of a Scottish tax system.  More on this can be found here.

I was also interested to see that HMRC plans to develop new digital services.  This is the kind of thinking those creating a Scottish tax system need to embrace.  More on this can be found here.

Now to matters slightly further afield and to some good news for the Hollande government.  The 75% top rate of tax proposal has finally been approved.  The initial proposal to tax individual incomes was ruled unconstitutional by the Constitutional Council almost exactly one year ago.  But the government modified it to make employers liable for the 75% tax on salaries exceeding 1m euros (£830,000).  More on this can be found here.

Staying with France.  The following Ernst & Young report shows the wide ranging role of France’s Constitutional Court in regard to taxation.  For example it stopped the Hollande government from widening the scope of the general anti abuse rule from ‘exclusively’ to ‘mainly tax driven’ transactions, and blocked the mandatory disclosure of tax planning schemes. The report can be found here.

Now for a bit of sport.  The European Commission is investigating whether the Spanish Government gave unfair tax reliefs to Spanish professional football clubs, including Real Madrid and Barcelona.  More on this can be found here.

The Canada Revenue Agency has published a warning to ‘snowbirds’ that it will consider them Canadian tax-resident no matter how long they spend in the US, if they maintain residential ties in Canada and do not obtain US permanent residency.  More on this can be found here.

Another interesting proposal from the Canadian Government.   They are going to pay people who inform on major international tax evasion, with pay-offs of up to 15% of the extra tax collected. More stringent monitoring of international bank transfers is also being introduced.  More on this can be found here.

And finally to China.  Documents obtained by the so-called International Consortium of Investigative Journalists from company service providers in the British Virgin Islands suggest that relatives of some of China’s governing elite have set up offshore companies.

This is from the following article: “As neither Chinese officials nor their families are required to issue public financial disclosures, citizens in the country and abroad have been left largely in the dark about the elite’s use of offshore structures which can facilitate the avoidance of tax, or moving of money overseas. Between $1tn and $4tn in untraced assets have left China since 2000, according to estimates.”

“China’s rapid economic growth is leading to a degree of internal tension within the nation, as the proceeds of the country’s newfound prosperity are not evenly divided: the country’s 100 richest men are collectively worth over $300bn, while an estimated 300m people in the country still live on less than $2 a day. The Chinese government has made efforts to crack down citizens’ movements aimed at promoting transparency or accountability among the country’s elite.”

Twas ever thus.  More on this can be found here.

Background
Sheriff Court case relating to a landlords’ failure to comply with the Tenancy Deposit (Scotland) Regulations 2011 in respect of a property at 4/6 Admiralty Street in Edinburgh.

The landlords failed to pay a deposit of £750 into an approved tenancy deposit scheme as required by regulation 3 of the 2011 regulations and made deductions from the deposit before returning it to the tenant at the end of the lease. In terms of regulation 10, where the landlord fails to comply with its duty under regulation 3, (following an application by the tenant) the sheriff must order the landlord to make a payment not exceeding 3 times the deposit to the tenant. Following an application from the tenants, the sheriff ordered the landlords to pay the maximum monetary payment of three times the deposit.

Argument
The landlords appealed challenging the sheriff’s decision on, what were essentially, 3 grounds:

1. that the summary application made by the tenants, although made timeously[1], sought declarator (that the landlord had failed to comply with its duties) but not payment (of the deposit/penalty) and was consequently incompetent;
2. that the sheriff had made an error in allowing an amendment to be made to the summary application outwith the time limit; and
3. that the sheriff had made an error in the exercising of his discretion as to the amount of the penalty (arguing that the sheriff had given no explanation for exercising his discretion in the way he did).

Decision
Summary application
It was implicit in the landlords’ argument that the unamended application was incapable of providing the tenant with a statutory payment (in terms of regulation 10). However, the Sheriff Principal found that the grant of declarator to the effect that a landlord has failed in its duties under regulation 3 is the trigger for a payment under regulation 10. The landlords in this case had admitted their failure to pay the deposit into the statutory scheme which engaged a mandatory requirement on the sheriff to make an order for payment. Whilst it would have been prudent for the tenant to have separately sought an order for payment, the summary application as drafted was sufficient to trigger a payment under regulation 10.[2]

Discretion
There are no rules as to the approach the sheriff should take in assessing the order and the regulations do not contain matters or criteria which the court must consider. Therefore, in the view of the Sheriff Principal, the sheriff has “complete and unfettered discretion” as to the award to make and an appellate court has little, if any, justification for intervening. Whilst procedural fairness suggests a sheriff must have regard to any mitigation, in this case, no evidence had been led in mitigation and it was difficult to see what effect the mitigation might have had. The Sheriff Principal noted:

“As I have observed the sheriff is entitled to impose any penalty including the maximum to promote compliance with the regulations especially at this early stage in their operation and implementation. I regard this as important. It is clear that the appellants made deductions from the deposit at the end of the tenancy directly contrary to the letter and spirit of the regulations. As the sheriff states – “the very thing which it seems to me this legislation was designed to avoid or at least mitigate.””

 And earlier in the decision she had stated:

“In dealing with non-compliance no distinction has been drawn by the legislators between the careless or devious; the experienced or inexperienced, the culpable or inadvertent. Likewise the strict liability consequences of non-compliance allow the court to promote rigorous application of the regulations pour encourager les autres. In other words deterrence.”

The full judgement is available from Scottish Courts here.

(See appeal to Inner House here.)

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

“Power of Attorney (PoA) Update – Manual Submissions

There is currently a 15 week waiting period before your PoA can be processed and returned to you. This week we will be working on PoAs received on and around 2nd October 2013.

If there is a genuine urgency, we will expedite the registration of a PoA ‘on cause shown’. We ask that people respect this service and only use it in cases of true urgency to avoid defeating its purpose.”

“Turnaround Time for Annual Reviews

There is currently a 14 – 16 week waiting period for annual accounts to be reviewed. We apologise for any inconvenience the delay may cause financial guardians

The Annual Review Team are currently working with accounts received on and around 30th September 2013. Financial guardians who have queries regarding their accounts or the waiting time may contact opgreviewteam@scotcourts.gov.uk.”

More on this can be found here.

Sheriff Court case concerning the validity of an irritancy notice.

Background
Shetland Leasing were the landlords, and Mr Younger the tenant, under the lease of commercial premises at North Ness Industrial Estate in Lerwick.

Shetland Leasing served a notice on Mr Younger (under s4 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985) advising that they had failed to pay rent and interest due in terms of the lease and demanding payment of £10,167.64 (stated to be the outstanding rent) within 14 days failing which Shetland Leasing would terminate the lease. The notice also stated that once payment had been received Shetland Leasing would advise as to the interest due.

Mr Younger did not pay and Shetland Leasing served a termination notice on Mr Younger. Mr Younger’s solicitors then sent the outstanding rent to Shetland Leasing’s solicitors and Mr Younger remained in the premises. Shetland Leasing sought declarator that the lease was at an end and summary ejection of Mr Younger from the premises.

Argument
Mr Younger argued that the irritancy notice was invalid as it did not adequately convey what required to be done in order to comply with it. In particular it did not include adequate specification of the rent said to have been in arrears: the rent was said to be for a period of 5 months rent but the actual figure quoted in the notice did not equate to that. Mr Younger contended that it was unclear whether the sum of £10,167.64 included interest and, because it was unclear which months had been paid in full and which had not, he could not calculate the interest due on the lease.

Decision
The Sheriff found that the lease had been validly terminated and granted decree for summary ejection of Mr Younger.

The purpose of the notice was to give a clear and unambiguous intimation to the tenant that there were arrears of rent which required to be paid within a specified period, failing which the landlord could rely on the irritancy clause in the lease to bring it to an end. The notice served by Shetland Leasing clearly demanded rent only and not interest.

In terms of s4 of the 1985 Act the landlord must demand payment of: “the sum which he has failed to pay together with any interest thereon in terms of the lease “. The lease made the tenant liable to pay interest on unpaid rent from the due date for payment until payment was “actually made”. The interest could not be calculated until payment was made. The sheriff found that the obligation as regards interest was to pay it within a reasonable period after payment of the rent. It followed that it was not necessary, or appropriate, that the notice demanded payment of the interest and its validity of the notice could not be attacked on that basis.

The sheriff also found that, although the notice referred to Mr Younger’s failure to pay interest when in fact there was no obligation to pay interest at that point, it did not make the notice invalid as Mr Younger ought to have known by reference to the lease that it was not payable at that time and could not have been misled by the assertion.

With regard to Mr Younger’s assertion that the arrears were overstated, the sheriff said:

“That is not a defence that is open to a tenant who has received such a notice and has done nothing in response to it. It may well be the case that the sum claimed in such a notice is inaccurate. That could be so for a variety of reasons. But in this case we are dealing with a commercial lease. The defender is a man of business. In running his business he must maintain records. He ought to know whether or not he is actually in arrears with his rent. He ought to be able to calculate from his records the extent to which he is in arrears with his rent. But all that the defender avers is that he was aware that he was in arrears of rent to some extent but was unaware of the exact amount. If it is truly the defender’s position that the section 4 notice overstated the arrears he could, and should, have responded to the notice by asserting a lower amount of arrears than was claimed and by paying that lower amount.”

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Inner House case concerning a brownfield site at St David’s Harbour in Dalgety Bay owned by Eadie Cairns Limited. The site had been previously used for both commercial and residential purposes until 1980 when it became derelict.

Background
In 2007 Fife Council produced a planning brief for developers proposing a mixed use development on the site. Eadie Cairns submitted an application for outline planning permission for a commercial and residential development along the lines of the planning brief. The Council failed to determine the application timeously and it was made the subject of a public local inquiry.  The Council opposed only the residential part of the application. In November 2007, the reporter at the inquiry allowed an appeal against the failure to determine the application and granted outline planning permission[1]. In October 2009 Eadie Cairns applied for detailed planning permission for 27 flats, a restaurant/bistro and a lighthouse. Planning permission was refused and the reporter[2]  refused an appeal on the basis of the siting of the flats.

By February 2010, the new proposed Dunfermline and West Fife local plan had been drafted. It  recorded that the Eadie Cairns site already had outline planning permission for commercial leisure and housing uses but also stated that if the permission were to remain unimplemented and expire the site should remain undeveloped and revert to greenspace. Eadie Cairns made representations opposing this aspect of the draft plan.

When considering approval of the plan, the Scottish Ministers required Fife Council to prepare a summary of unresolved issues in relation to the plan (including reasons the Council did not modify the plan in response to issues raised in representations). The Council identified Eadie Cairns objection to its site’s reversion to open space if planning permission lapsed and, as a reason for not accepting the objection, said:

“The site has significant planning history and was the subject of recent planning appeal.  The Draft local plan … maintains [the Council’s] position should the permission remain unimplemented.”

Meantime Eadie Cairns submitted a fresh planning application (for 24 flats, a restaurant/bistro and a lighthouse) after detailed discussions with Council’s planning officers. The Council again failed to determine the application timeously and Eadie Cairns again appealed to the Scottish Ministers. On the same day (3 May 2012) as the reporters ceased gathering information relating to the proposed local plan, Eadie Cairns sought to draw their attention to the fresh planning application stating that the planning officers’ support for the new application was inconsistent with the Council’s proposal for the site to revert to green space. The reporters refused[3] to consider this information and (noting that the outline permission for the site had lapsed) formally adopted the plan. The Scottish Ministers then refused the fresh application on the basis it did not accord with the plan.

Argument
Eadie Cairns sought an order quashing the entry relating to their site in the plan on the basis of the Council’s failure to give reasons. They argued that the reporters had not noticed the council’s failure and had not sought out their reasons (in contravention of national planning policy and guidance). The lack of reasons meant that the reporters could not properly scrutinise whether the proviso (i.e. that the site should return to greenspace) was appropriate or not.

Decision
Representations made by Eadie Cairns on 3 May 2012
The Inner House found that there had been no requirement for the reporters to take into account the representations Eadie Cairns had made on 3 May 2012 with regard to the fresh planning application. The statutory scheme involved a “cut-off date” at the point the reporter had completed examination. The purpose of the reporter’s examination was to assess issues raised in unresolved representations. The examination began at the point the Council summarised the objections and gave its reasons for not modifying the daft plan. Although the reporter could call for further representations, it was not obliged to consider any offers to provide additional representations. Consequently the “cut-off date” had long since passed by 3 May 2012.

Reasons given by Fife Council
The Inner House held that the Council had given no reasons for not modifying the proposed plan in terms of Eadie Cairns’ representations. Whilst the Council would not be criticised for giving reasons in a succinct, broad manner, intelligible reasons have to be given. The Council’s explanation of their position had been opaque. Their position, at the 2007 inquiry, was that commercial leisure, but not residential, development was appropriate for the site. However the inquiry had established that they had been wrong in relation to proper planning considerations and that a mixed commercial leisure and residential development was appropriate. Not only should the Council’s reasoning have provided coherent justification (preferably in the form of a material change in circumstances) for departing from the findings of the reporter in the 2007 inquiry, but it should also have given justification as to why the Council was no longer supporting the principles it had promoted in the 2007 planning brief.  In the absence of such reasoning there was:

“no apparent justification in planning terms for leaving an area of privately owned ground in amongst what is an urban development as, in effect, wilderness, especially in circumstances where it had formerly been the site of a bustling commercial harbour and remains what appears to be a prominent element in the local planning context.”

Reasons given by the reporters
The effect of this flaw in the Council’s reasoning had been that the issues had not been properly focused before the reporters. Whilst the reporters could have cured the flaw by requesting more information, they had not done. The Inner House found that no intelligible reason had been given by the reporters as to why the principle of commercial leisure and residential development established in 2007 was no longer appropriate for the site.

The Court also noted that the reporters had provided an erroneous, or at least materially incomplete, narrative of the planning history of the site and quashed the whole proposal relating to the site in the development plan.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

The England and Wales Court of Appeal has unanimously rejected HMRC’s assertion that a mother’s gift of a leasehold flat to her sons was a “gift with reservation of benefit” because the underlease contained covenants in her favour.

This ruling overturns the decisions of both lower tribunals.

“On 5 June 1996, Parkside Knightsbridge Limited, the superior landlord, granted Mrs Kamhi a lease, the Headlease, for a term of 100 years less one day, from 25 March 1994, of a flat in Knightsbridge, London at a premium of £250,000. The Headlease contained a term for payment of rent and a service charge of 3%. The tenant, Mrs Kamhi, covenanted to pay rent and, as additional rent, the service charge and advance service charge. There were other covenants, such as to keep the property in repair, to clean the premises and its windows, to indemnify the landlord against outgoings, to keep the flat decorated and to repay a proportion of the cost in relation to maintenance and cleaning of common areas.”

In 1997 she created a trust for her two sons and granted the trustees an underlease to the flat for their benefit for the remainder of the headlease term. The only trust property was the underlease.  Like the headlease, the underlease imposed covenants on the leaseholders to pay ground rent and service charges and to keep the flat in good condition.

“This appeal turns on the question whether those Tribunals were correct to conclude that the Underlease was not enjoyed to the entire exclusion, or virtually entire exclusion, of a benefit to the donor, by reason of positive covenants entered into by [the trust company] with Mrs Kamhi, which mirrored the covenants into which she had entered in her Head Lease.”

The case report can be found here.

Inner House case in which Mr Barr appealed a decision of the Outer House refusing his appeal of East Renfrewshire Council’s decision to grant planning permission to Stewart Milne Homes Limited to construct a development in Newton Mearns.

Background
Mr Barr lived at Fa’side House which was adjacent to the proposed development and was accessed by a tree lined driveway. The planning brief stated that the development should deliver “protection of the existing tree boulevard along the access to Fa’side House”. Mr Barr argued that the Outer House failed to recognise that, when granting permission for the development, the Council had failed to take account of a key requirement in its own planning brief and thus failed to take account of a material consideration.

Decision
The Inner House refused the appeal finding that it was plain from the decision that the judge had correctly identified the legal issue submitted by Mr Barr. It also refused to accept that the Council had failed to have regard to the content of its planning brief. In the Council’s “Report of Handling” there had been express reference to the planning brief and its objectives, including the need to protect the tree boulevard.

In the court’s opinion, Mr Barr’s complaint was, in essence, not that the Council had failed to have regard to the objectives of the planning brief but that they had failed to reach a conclusion that the proposed development would, in a material way, breach the planning objectives. In effect, Mr Barr was arguing that the proximity of the trees to the new development would inevitably lead to the trees requiring to be removed for safety reasons. However, the court found that Mr Barr had failed to show that there was evidence before the Council to support this argument.

In the view of the court, Mr Barr’s criticism of the Council decision related to the merits of the planning decision and to matters on which the Council was entitled to reach a conclusion.

The full judgment is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.