Peter Edwin Owen v John Widdrington Elliott (Hm Inspector of Taxes)

[1990] 1 CH 786

(Judgment by: Lord Justice Fox )

Peter Edwin Owen
v.John Widdrington Elliott (Hm Inspector of Taxes)

Court:
Chancery Division

Judges:
Lord Justice Fox
Lord Justice Parker
Lord Justice Leggatt

Legislative References:
Finance Act 1980 - s 80; s 80(1)
Capital Gains Tax Act 1979 - s 101; s 102

Hearing date:
Judgment date: 27 April 1990


Judgment by:
Lord Justice Fox

This is an appeal by the taxpayer from a decision of Mr Justice Millett, who dismissed an appeal from a decision of the General Commissioners holding that an assessment to capital gains tax for the year 1981/82 in the sum of some £20,000 in respect of the Gleneagles Hotel, Eastbourne should be upheld. The case is concerned with the meaning of the words "let by him as residential accommodation" in section 80(1) of the Finance Act 1980 .

The General Commissioners found the following facts. The Gleneagles Hotel ( "the hotel" ) consisted of two parts, namely a main building and an annexe. The taxpayer Mr Owen and his wife, who had purchased the property jointly in 1976, carried on a business of a private hotel and boarding house on the premises, in that they received guests for payment. Mrs Owen did the cooking and the washing for the guests. There were no separate facilities for cooking or washing clothes in the bedrooms. The main building consisted of ten bedrooms, a kitchen and a lounge. The annexe contained two bedrooms, a lounge and a kitchen and some ancilliary facilities. The hotel had a table licence for the supply of alcoholic drinks in the building.

The hotel received two types of guest for reward: (1) those who came for short-term stays, that is to say, two weeks or less, during the summer season between Easter and the end of September (some guests in fact stayed for rather longer periods than two weeks); (2) guests who came in the period from October to Easter, the low season. These guests were often from abroad and stayed, on an average, for three to four months. However, they could if they wished stay on into the summer season if they paid the summer rates. During the summer season Mr Owen and his family occupied the annexe; the main building was occupied by the guests. In the low season the Owens occupied the whole of the building, together with their guests, who were rarely more than one or two in number.

On 24th March 1982 the whole property was sold. It had been agreed between Mr Owen and the Inspector that one-third of the gain arising on the sale of the hotel should be treated as exempt from capital gains tax under sections 101 and 102 of the Capital Gains Tax Act 1979 . Those sections confer an exemption in respect of a gain accruing to an individual so far as attributable to the disposal of a dwelling-house which was at any time during his period of occupation his only or main residence. Section 80 of the Finance Act 1980 , with which this case is primarily concerned, introduced, however, a further relief. Section 80(1) provides:

"Where a dwelling to which section 101 of the Capital Gains Tax Act 1979 (disposals of private residences) applies accrues to any individual and the dwelling-house in question or any part of it is or has at any time in his period of ownership been wholly or partly let by him as residential accommodation the part of the gain, if any, which, apart from this section would be a chargeable gain by reason of the letting, shall be such a gain only to the extent, if any, to which it exceeds the lesser of [two amounts]."

I need not read those out. The first, (a), relates to the part which is not a chargeable gain by virtue of the provisions of section 102 and the second, (b), is the sum of £10,000, which has subsequently been increased to £20,000 though in fact in relation to the present case it is the sum of £10,000 which is applicable. The remainder of section 80 I need not read. The section applies to disposals after 3rd April 1980.

Although the hotel was jointly owned, the assessment was made on Mr Owen alone as the husband. The Commissioners held that the taking of boarders at the hotel during the Owens' period of ownership did not constitute lettings as residential accommodation within section 80(1) and the relief given by that section was therefore refused. The issue is the meaning of the words in section 80(1) , "let by him as residential accommodation" .

On appeal from the Commissioners by the taxpayer, Mr Justice Millett held that the words "residential accommodation" were capable of meaning, as the Crown submitted, accommodation let to persons making their home in the premises which were let, as opposed to paying guests staying there overnight or on holiday; and that it was also capable of meaning, as the taxpayer submitted, accommodation let to persons as paying guests in the manner in which the rooms were let by Mr and Mrs Owen in the hotel, as opposed to, say, trade or storage accommodation. The judge's conclusion was that, although his mind had wavered during the course of the argument, taken in the context of section 101 of the Capital Gains Tax Act 1979 , the Crown's interpretation was correct. Mr Justice Millett took the view that the question depended upon the quality of the letting by the owner of the premises and that, looked at in those terms in the context of section 101 , the proper construction was that the letting must be in effect for the purpose of a home for the person to whom the letting was made. In the circumstances the judge concluded:

"If the accommodation was let as residential accommodation to persons who by and large were likely to take advantage of it for that purpose, then it will qualify: if not, it will not. In order to obtain the relief the taxpayer must establish that the kind of letting in which he was engaged was a letting to people who would be likely to use it as their home. The relief would normally be available to the home owner who provides lodgings for university students or accommodation for hospital nurses, or who takes in lodgers from time to time, but not to someone who is simply carrying on an hotel or boarding house business."

On that basis, the judge considered that the General Commissioners were right and dismissed the appeal by Mr Owen. For completeness I should mention here that it is common ground that the word "let" in section 80(1) includes a licence. It is not limited to leases.

The first question is the meaning of "residential accommodation" in the expression "let by him as residential accommodation" in section 80(1) . Does it include such lettings as were made by Mr and Mrs Owen in the hotel in this case? Mr Moses for the Crown accepts that as a matter of the ordinary use of the English language it does, read by itself. He says however that section 80(1) must be read in its context. It was designed, he says, to extend the relief afforded by section 101 and section 102 of the Capital Gains Tax Act 1979 . Section 80 only applies if the dwelling-house falls within section 101 of the 1979 Act, which the hotel in the present case, it is agreed, does.

It is then said that the concept of a home is central to section 101 and is carried into section 80(1) of the Act of 1980, and that it is therefore consistent with the relief to extend it to taxpayers who have some surplus accommodation in their homes and which they are proposing to let to a person as his home. It is said, therefore, that in their proper context the words "residential accommodation" in section 80 do not extend to the lettings of the rooms in the hotel in the present case.

I accept that the words "residential accommodation" must be construed in their proper context and that that context includes section 101 of the Capital Gains Tax Act 1979 , but I see nothing in section 101 which displaces what is accepted to be the ordinary meaning of the words "residential accommodation" .

Let it be accepted that section 101 is concerned with dwelling-houses that can reasonably be called "homes" . In section 101 , it seems to me, the dwelling-house acquires that status by language which bears no resemblance at all to that in section 80 . The draftsman of section 101 achieves his purpose by referring to a dwelling-house "which is, or has at any time during his period of ownership, been his only or main residence" . It seems to me that those words, taken together, are what achieve the concept of a home in section 101 and there is nothing at all which resembles them in section 80(1) of the Finance Act 1980 .

Mr Moses says that the concept of a home is conveyed by the word "residence" alone. I do not feel able to accept that. A person may well have a residence or several residences which are not his home. The language of section 101 plainly, it may be said, indicates a home. In any event one must read the whole of the language of section 101 . I see nothing corresponding to it in section 80(1) . Section 101 nowhere uses the expression "residential accommodation" and I see nothing in its provisions to displace the admitted meaning of the words "residential accommodation" as a matter of the ordinary use of the English language. If the draftsman of section 80 wanted to introduce a requirement of a home as a basis for the granting of the relief in respect of the relevant letting, I find it impossible to believe that he would not have used language which made that plain; and I find it impossible to believe that he was relying upon the wholly different language of section 101 of the Act of 1979 to achieve it for him, more particularly when he, in section 80 , uses words which, according to their ordinary meaning in English, have a totally different meaning and effect. Moreover I see no reason why it should be assumed that because the relief is granted in respect of the home of the taxpayer the additional relief should only attach to a letting to third parties as their homes. There is no necessary connection between the two, a fact which, it seems to me, is strongly emphasised by the total difference in language between section 80 and section 101 of the 1979 Act.

Both sides addressed to us arguments relating to the policy behind the enactment of section 80 . For myself I do not find that enquiry of assistance. Let it be accepted that section 80 was designed to encourage householders who had surplus accommodation in their dwelling-houses to make it or some of it available to other persons. The precise ambit of the circumstances in which the relief was intended to be given can only be determined by reference to the language of section 80 itself and, for the reasons which I have indicated, I see nothing in section 80 to lead me to the conclusion which would support the Crown's construction in the present case.

In the circumstances, and for the reasons which I have indicated, I think that the language of the Act of 1980 is such that the lettings made in this hotel were within the words "residential accommodation" and that accordingly the Commissioners' decision was erroneous in point of law and that the present appeal should as a result be allowed.